how expensive is norway?
TRANSCRIPT
How expensive is Norway?
On deviations of purchasing power in Europe
Helen Lausvee
Master thesis for the degree in Master of Philosophy
Department of Economics
UNIVERSITY OF OSLO
February 2012
i
Acknowledgements
I would like to express my gratitude to my supervisor Steinar Holden, for his guidance, useful
comments, and patience along the way. Thank you for always being available and critical
when needed.
A special thanks to my family and friends for encouraging me and being supportive.
Helen Lausvee
Oslo, February 2012
ii
Summary
In this thesis, I have examined how Norwegian prices on various consumption goods and
services differ from the prices in other wealthy countries in Europe. The goal has been to find
out how expensive it actually is to live an average life for an average citizen in Norway.
The data used is based on European purchasing power parities study published by Eurostat. A
key variable is the Price Level Index, which is an index for the price of a certain good or
category of goods measured in a common unit, which makes it possible to compare price
levels across countries. Another key variable is the Purchasing Power Standards, which are
based on price level indices by converting these into an artificial common currency.
Purchasing Power Standards (PPS) can thus be used when comparing quantities, like GDP per
capita or consumption per capita, across countries.
The empirical results are based on twelve main consumption categories. These categories
include both goods and services paid by the households as well as goods and services that are
covered by the government. The results confirm that within most of the consumption
categories, Norway does have one of the highest price levels among all the economies
surveyed. These high price levels are a result of a high income level - high gross domestic
product per capita and on high wages. Prices on alcohol and tobacco are exceptionally high in
Norway, when compared to other economies. But on these goods, high prices are due to a
political decision-making rather than being a result of economic development.
However, prices in Norway are not high for all the goods and services within the twelve
categories. Both housing and other communal services as well as the communication sector
are relatively inexpensive in Norway compared to the other European countries. Presumably,
the reasons for that include governmental subsidies and different taxation policies. In
addition, one must not forget the fact that consumers in different countries have different
tastes and preferences, making the universal comparison more complicated.
As prices influence both the quantity produced and the patterns of consumption, the thesis
also takes a look at to what extent prices actually influence households’ consumption
expenditure based on income levels. In case of Norway, the evidence indicates that when
prices are measured against households’ average gross wage, there does not seem to be any
clear effect on consumption patterns. However, when prices are measured against households’
iii
net average wages, there seems to be a slight effect on households’ consumption. Thus
Norwegian income tax and social security contributions do have an impact on actual
consumer demand.
The results show that for an average citizen working in Norway, it is not an expensive country
to live in. This is because wages fit the prices and many of the vital services like healthcare,
housing and education are partly covered by the state.
iv
Table of contents
Acknowledgements ..................................................................................................................... i
Summary .................................................................................................................................... ii
Table of contents ....................................................................................................................... iv
Abbrevations .............................................................................................................................. v
1 Introduction ............................................................................................................................. 1
2 Theoretical framework ............................................................................................................ 3
2.1 Harrod-Balassa-Samuelson effect .................................................................................... 4
3 Measuring prices ..................................................................................................................... 6
3.1 Purchasing power parity ................................................................................................... 6
3.1.1 Price Level Indices ..................................................................................................... 7
3.1.2 Purchasing Power Standards ...................................................................................... 7
3.1.3 The pricing of health and education services ............................................................. 8
4 Consumption expenditure ..................................................................................................... 10
4.1 Actual Individual Consumption ...................................................................................... 11
4.2 Consumption expenditure and Actual Individual Consumption .................................... 12
5 Empirical results .................................................................................................................... 16
5.1 Prices .............................................................................................................................. 16
5.1.1 The income level and prices .................................................................................... 18
5.1.2 Productivity and prices ............................................................................................ 18
5.1.3 Gross Domestic Product and prices ......................................................................... 22
5.1.4 Relative consumption and relative prices ................................................................ 25
5.2 Wages ............................................................................................................................. 28
5.2.1 Wages and prices ..................................................................................................... 29
5.2.2 The effect of wages at the sectoral level .................................................................. 32
5.2.3 Relative wages and relative prices ........................................................................... 35
5.2.4 Net wages and prices ............................................................................................... 39
6. Concluding remarks ............................................................................................................. 42
7. References ............................................................................................................................ 44
7.1 Web pages....................................................................................................................... 44
8. Appendix ............................................................................................................................ A-1
8.1 Tables and figures ......................................................................................................... A-6
v
Abbrevations
AIC Actual Individual Consumption
ESA95 The European System of Accounts, revised 1995
EU European Union
EU27 All current 27 Member States of the European Union
EUR Euro
GBP Great Britain Pound
GDP Gross Domestic Product
HFCE Household Final Consumption Expenditure
n.e.c Not elsewhere classified
NOK Norwegian krone
PCE Personal Consumption Expenditure
PLI Price Level Index
PPP Purchasing Power Parity
PPS Purchasing Power Standard
UK United Kingdom
US United States
1
1 Introduction
From the early 1970s, Norway experienced accelerated growth as a result of exploiting large
oil and natural gas deposits that had been discovered in the North Sea. Its emergence as a
major oil and gas producer transformed the economy and the rapid growth of the petroleum
sector has contributed significantly to Norwegian economic vitality and stimulated onshore
economic activities. Today, Norway ranks as one of the wealthiest countries in the world in
terms of GDP per capita and with the second largest capital reserve per capita in Europe1. It is
the world’s fifth largest oil exporter2, and the petroleum industry accounts for around a fifth
of its gross domestic product3. In addition to oil and natural gas, Norway is a large exporter of
seafood and has rich resources of hydroelectric power, forests and minerals. Following the
financial crisis of 2007–2010, World bankers declared the Norwegian krone to be one of the
most solid and reliable currencies in the world4. It has been repeatedly placed on top of
various cost of living rankings, like the Economist, and the capital Oslo has climbed to the
rank of the world’s most expensive city in various surveys, like UBS.
On the other hand, this rapid welfare growth has led to a steep increase in its overall cost
level. And, given the energy industry’s weight in the economy, diversification into other
industries is a long-term challenge for Norway.
In this paper, I will take a closer look at Norway’s price level, focusing on the consumer side
of the economy. I will compare it to ten large and wealthy economies in Europe to find out
whether Norway’s reputation as a high cost land is justified or not.
In order to look at how prices differ on consumer goods and services, I use empirical data
from the European purchasing power parities study undertaken by Eurostat. This study
provides data of comparable prices on various goods and services, as well as the
corresponding quantities. The quantity figures are based on consumption in value, adjusted to
1 After Luxembourg, Eurostat (nama_gdp_c)
2 Pr 2009, http://en.wikipedia.org/wiki/List_of_countries_by_oil_exports
3 Pr 2010, http://www.ssb.no/english/yearbook/fig/fig-289.html
4 http://www.time.com/time/business/article/0,8599,1887090,00.html
2
price level differences between the countries5. The data is based on a consumer with typical
western European preferences and is mainly collected for the last few years.
Is it so, that Norway is the most expensive for all consumer goods and services or are there
any differences? And if so, are these differences based on economic or political decision-
making? Does government subsidization on services like health and education trigger a larger
domestic consumption for these services in Norway than, for instance, in United Kingdom?
The thesis tries to find the answers to those questions.
5 As most of the data in this thesis is represented visually, the actual figures are found in the appendix section.
3
2 Theoretical framework
Purchasing power parities, PPPs, are currency conversion rates that both convert to a common
currency and equalize the purchasing power of different currencies. By doing so, the
differences in price levels between countries are eliminated. PPPs can be used both as a
theoretical tool, using real exchange rates, as well as a practical tool, which are based on
nominal exchange rates.
The real exchange rate is the relative cost of a common reference basket of goods where the
baskets’ costs in the two countries are compared after converting them into a common unit
like euros. The Theory of PPP predicts that the real exchange rate should equal to one, or at
least have a tendency to return quickly to one, when that long-run ratio is disturbed for some
reason. This is often referred to as the absolute PPP. The relative PPP is the weaker statement
meaning that there are some equilibrium relative price levels, generally differing from one,
but these tend to move towards equilibrium. Both the absolute and the relative PPP is founded
on the law of one price. The idea behind it is that in absence of transaction costs and official
trade barriers, identical goods will have the same price in different markets when the prices
are expressed in one currency. There is thus a possibility for arbitrage, meaning that there is a
possibility of a risk-free profit at zero cost. If such arbitrage were pervasive, both gas and gold
bars would sell for the same price everywhere - in Mumbai as well as in Oslo. Arbitrage
would thus be possible for every commodity as long as it’s transportable from one country to
another.
In theory, if purchasing power parity held exactly, the real exchange rate would always equal
to one. However, in practice, real exchange rates exhibit both short- and long-run deviations
from this value. There can be market differences between purchasing power adjusted GDP per
capita, and those converted via market exchange rates, the PPPs. For instance the World
Bank's World Development Indicators show that in 2010, Norway's nominal GDP per capita
was around US$84,5386, but its PPP figure showed only US$56,692
7.
Although the law of one price and exchange rate based PPPs seem to be the same, there is an
important difference: the law of one price applies to individual commodities whereas
6 http://data.worldbank.org/indicator/NY.GDP.PCAP.CD/countries
7 http://data.worldbank.org/indicator/NY.GDP.PCAP.PP.CD
4
exchange rate PPP applies to the general price level. In addition, empirical evidence shows
that both of these approaches fail dramatically in practice, even for products that commonly
enter international trade. The reasons for this does not only include transport costs and official
trade barriers, but also a noncompetitive market structures, which is a major hinder for
emerging market economies entering international trade.
2.1 Harrod-Balassa-Samuelson effect
A country’s price level should reflect its domestic purchase price of a well-defined basket of
commodities, given some fixed numeraire like in terms of euros. This price level is increasing
in the prices of both tradables and nontradables. The nontradables are defined as goods that
are so costly to ship that they do not enter international trade (like most of personal services),
while tradables are the opposites and can be transported abroad. Typical tradable goods are
food, clothing and electronics, while typical nontradables are rental housing and postal
services.
As prices are increasing in both tradables and nontradables, the international productivity
differences can have implications for relative international price levels, i. e. the real exchange
rates, which show the relative cost of the common reference basket of goods. This is
commonly referred to as Harrod-Balassa-Samuelson effect meaning that a country with
higher productivity in tradables compared to nontradables have also generally higher price
levels.
To illustrate the Harrod-Balassa-Samuelson effect, let us assume that traded goods are
composed with a uniform price in each of two countries – Home and Foreign. Nontraded
goods have distinct Home and Foreign prices in terms of tradables, denoted as p and p*. For
illustrative purposes, let us assume a particular functional form to describe how the price
level, the cost of living, depends on the prices of traded and nontraded goods. Assume that the
price level is a geometric average with weights γ and 1- γ, of prices of both tradables and
nontradables. Taking tradables as a base group, with a common price of 1 in both countries,
the Home and Foreign price indices are
Thus the Home-to-Foreign price level ratio is
5
We see that in this model, Home’s real exchange rate against Foreign depends only on the
internal relative prices of nontraded goods, 1-γ. By log-differentiating this ratio and using
equation showing the price change of nontradables, , as a function of productivity growth in
tradables and nontradables, respectively, we can see how relative productivity
shifts cause real exchange rates to change systematically:
8
Here, assuming that
, i.e. that the labor’s share of the income generated in the
nontraded goods sector exceeds the labor’s share in traded sector, the price change on
nontradables, , is higher when the productivity growth in tradables, , exceeds the
productivity growth in nontradables, .
Letting both countries’ sectoral outputs be proportional to the functions and
, but with possibility for different factor productivities, then
.
As
, it follows that Home will experience real appreciation (a rise in its relative price
level) if its productivity growth advantage in tradables exceeds its productivity growth
advantage in nontradables9. This result holds regardless of any assumptions about the model’s
demand side and, in particular, is robust to international differences in consumption tastes.
As the productivity gain is more limited in nontradables than in tradables, rich countries
should have become rich mainly through high productivity in tradables. Although they are
also likely to have achieved higher productivity in nontradables than poorer countries, the
difference tends to be less pronounced. This is the reasoning to Harrod-Balassa-Samuelson
proposition that price levels tend to rise with country’s per capita income.
8 See appendix for detailed calculations
9 Obstfeld, M. and Rogoff, K. (1996): “Foundations of International Macroeconomics”, p.207-212
6
3 Measuring prices
All countries produce and consume tens of thousands of commodities and services, many of
which have prices that differ from country to country because of transport costs, tariffs and
other trade barriers. A model that can incorporate these goods and services can be such that
focuses on the relative prices of a small set of aggregate output groups. As it’s difficult and
too complicated to incorporate all goods’ relative prices, it is more common to compare the
relative prices of a small set of goods’ groups. Relative prices play a central role in an open
economy’s adjustments to economic shocks and both the relative costs of living in different
countries and the relative prices of countries’ exports and imports often display dramatic
short- and long-term shifts as changes in relative prices will include substitution effects on
actual expenditure. As price level indices can differ both by the basket used to define them
and the item used in itself, the most common way of measuring the basket is to collect the
most representative consumer purchases.
3.1 Purchasing power parity
As mentioned earlier, Purchasing power parities, PPPs, can be used both as a theoretical tool
as well as a practical tool, based on exchange rates. The practical approach of PPPs is used to
measure nominal exchange rates10
based on relative price levels of two countries, in order
show how many currency units a given quantity of goods and services cost in different
countries. For example, if the price of bread in Norway is 21,5 krones and in Finland 2,9
euros, the PPP for bread between Norway and Finland is 21,5 krones to 2,9 euros, or
7,41 krones to one euro. This means that for every euro spent on bread in Finland, 7,41
krones would have to be spent in Norway to obtain the same quantity and quality, i.e. the
same volume, of bread. Applying nominal exchange rates in this process would overestimate
the actual price for the country with high price levels relative to the country with low price
levels. The use of PPPs ensures that a particular commodity is valued at a uniform price.
10
The rate at which currency can be exchanged
7
3.1.1 Price Level Indices
In recent years, a new way of comparing prices between countries has been adapted – called
Price Level Indices, PLIs. This method is very useful when comparing countries based on a
single country or a group of countries (e.g. European Union), giving a good indication of the
economic and social development of each country and the price convergence between them.
PLIs are found by dividing a country's PPP with its annual average nominal exchange rate and
converting the result into a percentage. For example, if the PPP for bread between Norway
and Finland is 7,41 and if, at the same time, the nominal exchange rate between the krone and
the euro is 7,88 krone to one euro, the PLI for bread in Norway and Finland would be:
This means that the price of bread in Norway is 6% lower, taking Finland as the base country.
As exchange rates are used in PLI comparisons, the exchange rate movements have a major
impact on country’s PLIs. An appreciation of a country’s currency will make the country
more expensive compared to other countries and this will show as an increase of the relative
price level expressed in the PLI. This understanding of the differences in price levels is
important when comparing economic data in national accounts, such as GDP, because higher
relative prices could make an economy look healthier than it really is.
European Union and Eurostat11
use PLIs to compare EUs single market for goods and
services and to look at the price convergence among its Member States. PLIs are not intended
to rank countries strictly, but used as indicators of the magnitude of country’s price level in
relation to the others. In addition, the degree of uncertainty associated with the basic price
data and the methods used for compiling PPPs, may lead to differences between the PLIs.
3.1.2 Purchasing Power Standards
When comparing economic variables, like GDP and consumption, we need to take into
account the large differences in prices that are shown in the price level indices. Eurostat does
this by converting the economic variables into an artificial common currency, Purchasing
Power Standards, making use of the PPP-figures. For example, if GDP per capita for Norway
11
Eurostat is the statistical office of the EU, providing statistics collected from all European statistical agencies.
8
is NOK 516 10012
and its corresponding PPP is 11,688113
and the figures for United Kindgom
are GBP 23 500 and 0,8583 respectively, GDP per capita expressed in PPS is:
Norway:
United Kingdom:
These figures are now expressed in the same currency and in the same prices and thus
represent real expenditure, i.e. volumes. Now, choosing United Kingdom as a base country,
we find out that Norway’s economy in per capita terms is 61,3 per cent bigger than that of
United Kingdom, after price level difference between these two countries is taken into
account:
Norway:
United Kingdom:
3.1.3 The pricing of health and education services
PPPs on typical market goods and services are relatively easy to collect, as these are observed
in the market. Finding comparable PPPs for non-market services like health and education is
more complicated as they are not priced in any way. Because of this, national accountants
have adopted the convention of valuing the outputs of non-market producers by totaling up
the costs to produce them. Government can either buy health and education services from
market producers or produce these services itself after households have made the purchase.
The government can either buy non-market services from market producers, when available,
or produce services itself. For services bought from the market producers, PPPs are collected
based on output price. PPPs for services that the government produces itself are based on
input prices, i.e. on basic cost components. The basic cost components used is based on the
assumption that the data will be taken from the government production account and is as
follows:
compensation of employees
intermediate consumption
gross operating surplus
net taxes on production
12
Real figures for 2010, Eurostat (nama_gdp_c) 13 Real figures for 2010, Eurostat (prc_ppp_ind)
9
receipts from sales
Compensation of employees is reported as a national average for a selection of occupations in
public education and hospitals, including basic salary or wage and employers’ social
contributions. Overtime payments and benefits are excluded as it is too difficult to obtain data
that is comparable across countries. Receipts from sales is required to net off gross output to
obtain government final consumption expenditure on the production of these services. Gross
operating surplus and net taxes on production are included for completeness. As net operating
surplus is expected to be insignificant, gross operating surplus will be equal to consumption
of fixed capital.
The input price approach does not take into account differences in productivity between the
producers of non-market services in different countries. It assumes that non-market producers
are equally efficient and that the same level of input will yield to the same volume of output,
regardless of the country in which the non-market producer is operating. This means that
differences in price levels to a large extent reflect differences in wage levels measured in
common currency. This again will affect the PPPs and expenditure levels not only on health
and education alone, but also on main aggregates of which these expenditure categories are a
part of, i.e. Actual Individual Consumption, AIC, and GDP14
.
14
Eurostat, OECD (2006): “Methodological manual on purchasing power parities”, annex to ch. 5:
http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-BE-06-002/EN/KS-BE-06-002-EN.PDF
10
4 Consumption expenditure
PPPs are not only used in price comparisons, but also in national accounts aggregates, in
order to convert various economic indicators into comparable real expenditures. For instance,
if the PPP for GDP between France and United Kingdom is 1,39 euros to one pound, meaning
that for every pound spent on GDP in the United Kingdom, 1,39 euros would have to be spent
in France in order to purchase the same volume of goods and services. In volume
comparisons, baskets of goods and services used do not have to be exactly identical and can
vary between countries, reflecting differences in tastes and cultural backgrounds. But both
baskets will, in principle, provide equivalent satisfaction of utility and thus a good unit of
measurement.
In national accounts, gross domestic product, GDP, is the most frequently used measure for
the overall size of a country’s economy, while derived indicators like GDP per capita, i.e.
GDP divided by number of inhabitants, is widely used when comparing living standards
across countries. An additional relevant variable is the households’ share of consumption
expenditure in GDP is often used. Table 4.1 shows that in 2010 this share was about half of
the total GDP in all countries, with the highest shares in UK (61,8%) and Italy (60%). In
contrast, the consumption share in Norway was the lowest among all ten economies,
constituting for 41,1 per cent of total GDP. This is largely due to high savings level. In fact,
the data from 2009 shows than Norway had the highest savings level among all European
economies, constituting for 33,8 per cent of gross national disposable income15
. Measured in
per capita terms, households in Switzerland had the highest consumption expenditure (PPS 20
100), followed by Norway (PPS 18 200) and UK (PPS 16 900).
Table 4.1: Final consumption expenditure of households
15
See Appendix for details
2000 2005 2010 2000 2005 2010
Denmark 46,9 47,5 47,7 11 800 13 200 14 800
Germany 56,8 57,2 55,9 12 700 14 900 16 100
Spain 58,8 56,9 56,7 10 900 13 000 13 900
France 54,3 55,1 56,1 11 900 13 600 14 800
Italy 59,6 58,6 60,0 13 300 13 900 14 800
Finland 47,4 49,3 52,1 10 600 12 700 14 700
Sweden 47,6 46,6 47,0 11 600 12 700 14 100
United Kingdom 63,1 62,5 61,8 14 300 17 100 16 900
Norway 41,4 40,7 41,1 13 000 16 200 18 200
Switzerland 58,0 58,0 55,9 16 000 17 200 20 100
Source: Eurostat (nama_fcs_c)
Per capita (PPS)Percentage of GDP
11
Other areas of consumption patterns where PPPs are used include Personal Consumption
Expenditure (PCE), which shows actual individual consumption expenditure by households,
and Household Final Consumption Expenditure (HFCE), which denotes expenditure on goods
and services that are purchased and paid for by households only and do not take into account
the goods and services that are paid for by the government. PCEs are broader in scope and
usually include some of the spending on behalf of consumers by employers and government
agencies, while HFCE shows expenditure only paid by the households. In international
volume comparisons Actual Individual Consumption, AIC, is often used.
4.1 Actual Individual Consumption
Actual Individual Consumption, AIC, consists of goods and services paid for by individuals
as well as services paid for by governments like education and health services. AIC consists
thus of goods and services actually consumed by individuals, irrespective of whether these
goods and services are purchased and paid for by household, by government or by other
institutions. This means that comparisons based on HFCE would to some degree be
misleading as they do not compare like with like. AIC, on the other hand, is not influenced by
the fact that the organization of certain important services consumed by households, like
health and education services, differs a lot across countries. An example is dental services,
which are paid for by the government in one country, and by households in another. The AIC
will take this fact into account, providing a fair comparison between the countries.
Actual individual consumption is divided into following sub-groups:
the individual consumption expenditures by households (HFCE)
general government
non-profit institutions serving households (NPISHs)
Here, the general government includes all institutional units which are non-market producers
and whose output is intended for individual and collective consumption and/or all institutional
units principally engaged in the redistribution of national income and wealth. General
government is mainly financed by compulsory payments made by units belonging to other
sectors. General government includes all administrative departments of the State and general
public services like education, health, defense, public order and safety.
12
Non-profit institutions serving households are private, non-market producers, and involve
institutions that are mainly financed and controlled by the government providing goods and
services for free or at very low prices. Their main resources come from voluntary
contributions, occasional sales and property income as well as from payments made by
general governments. Examples include churches and other religious societies, sports and
other clubs, trade unions and political parties.
Comparing the per capita measures of GDP and AIC, it is obvious that they’re highly
correlated as country’s high level of production, measured by GDP, will also lead to
potentially high level of consumption.
4.2 Consumption expenditure and Actual Individual Consumption
As mentioned, AIC is a measure of individual goods and services that households actually
consume, as opposed to what they actually purchase (i.e. HFCE) and consists of the following
three consumption groups: 1) final consumption expenditure of households, 2) final
consumption expenditure of general government and 3) Final consumption expenditure of
non-profit institutions serving households (NPISHs).
Figure 4.1 shows the composition of these 3 consumption groups:
Figure 4.1: Composition of AIC per capita, price level adjusted
14 600 16 000
13 900 14 600 14 700 14 700 14 100 17 200 18 000
20 200
200 500
200 500 100 700 500
700 800
700 8 900 5 700
5 200 6 500
5 200 6 900 8 100
6 500
9 800 4 100
0
5 000
10 000
15 000
20 000
25 000
30 000
PP
S p
r ca
pit
a
Composition of Actual Individual Consumption in 2010 Final consumption expenditure of general government
Final consumption expenditure of NPISH
Final consumption expenditure of households
Source: Eurostat (nama_gdp_c)
13
Norway had the highest total Actual Individual Consumption level (PPS 28 600), followed by
Switzerland (PPS 25 000) and Denmark (PPS 23 700). On a disaggregated level, there are
visible deviations between the countries. The share of households’ expenditure was largest in
Switzerland (PPS 20 200), closely followed by Norway (PPS 18 000) and UK (PPS 17 200).
The part paid for by the general government was highest in Norway (PPS 9 800), followed by
Denmark (PPS 8 900) and Sweden (PPS 8 100). Switzerland’s general government
contributed least to AIC (PPS 4 100) among all ten economies.
Table 4.2 illustrates the allocation of these 3 groups as a percentage of total GDP. The table
shows that consumption expenditure by households has constituted most to the total GDP,
ranging from 41 per cent for Norway to nearly 63 per cent for UK in 2010. At the same time,
the expenditure of general government and NPISHs were between 11-30 per cent and 0,4 -
2,6 per cent respectively.
Table 4.2: Actual individual consumption in sub-groups
There is a wide gap between the expenditure levels of general government between the
countries. In 2010, this figure was highest in Denmark and Sweden with 29,1 and 26,9 per
cent respectively, while it was lowest in Switzerland, constituting for 11,5 per cent of its total
GDP.
As mentioned, municipal services like healthcare and education are in many countries partly
covered by the government. Table 4.3 shows how big this has been over the last decade.
Households NPISHs General government
United Kingdom 61,8 2,6 23,0
Italy 60,0 0,4 21,1
Spain 56,7 1,0 21,1
France 56,1 2,0 24,8
Germany 55,9 1,6 19,7
Switzerland 55,9 2,1 11,5
Finland 52,1 2,5 24,6
Denmark 47,7 0,8 29,1
Sweden 47,0 1,6 26,9
Norway 41,1 2,0 22,0
Source: Eurostat (nama_gdp_c)
Final consumption expenditure, % of GDP (2010)
14
Table 4.3: General government expenditure on health and education
In Norway, the general government has one of highest consumption levels among all ten
economies. In 2009, Norwegian government expenditure on health was about 8 per cent and
on education above 6 per cent of its GDP. This may indicate lower prices that consumers
must pay for themselves.
In total, AIC consists of the following twelve consumption categories16
(jf. ESA9517
):
Actual Individual Consumption
Category Components 1. Food and non-alcoholic beverages Bread and cereals, meat, fish, milk, cheese, eggs, oils, fats, fruits,
vegetables, potatoes, other food, non-alcoholic beverages
2. Alcoholic beverages, tobacco and
narcotics
alcoholic beverages, tobacco and narcotics18
3. Clothing and footwear Womens, mens and infant clothing and footware
4. Housing, water, electricity, gas and
other fuels
Actual rentals for housing, maintenance and repair of the dwelling,
water supply and miscellaneous services relating to the dwelling
5. Housing furnishings, equipment and
maintenance
Furniture and furnishings, carpets and other floor coverings,
household textiles and appliances, glassware, tableware and household
utensils, tools and equipment for house and garden, goods and services
for routine household maintance
6. Transport Purchase of vehicles, operation of personal transport equipment,
transport services
7. Communication Postal services, telephone and telefax equipment and services
8. Recreation and culture Audio-visual, photographic and information processing equipment,
other major durables for recreation and culture, other recreasional
items and equipment, gardens and pets, recreational and cultural services,
newspapers, books and stationary, package holidays
16
See appendix for detailed list of goods and services collected 17
The European System of Accounts used by members of the European Union. 18
Although illegal, market transactions in such goods and services have to be recorded in the accounts, see
section 3.96 p. 106 in OECD (2008): “System of National Accounts”
15
9. Restaurants and hotels Catering services, accomondation services
10. Miscellaneous goods and services Personal care, social protection, insurance, personal effects n.e.c.,
financial services and other services n.e.c.
11. Health Medical products, appliances and equipment, out-patient services,
hospital services
12. Education Pre-primary and primary education, secondary education, post-secondary
non-tertiary education, tertiary education, education not definable by level
Source: Metadata on Purchasing Power Parities, Eurostat
European Price Statistics 2008, Eurostat
In 2009, the allocation of AIC for an average European households was as follows:
Figure 4.2: Average consumption expenditure of households in Europe, 2009
Figure 4.2 shows that nearly a quarter, 22,9 per cent, of AIC consisted of communal services
like housing, water, electricity, gas and other fuels, followed by expenditures on transport and
food and non-alcoholic beverages, with 13,2 and 13,1 per cent respectively. The lowest
expenditure was recorded on communication and education, constituting for 2,7 and 1,1 per
cent respectively.
16
5 Empirical results
In national accounts, Gross Domestic Product, GDP, is the most frequently used measure for
the overall size of a country’s economy, while derived indicators such as GDP per capita, i.e.
GDP divided by number of inhabitants, is widely used in comparison of living standards
across countries. The results should also be price level adjusted (e.g. PPSs), so that
differences in price levels among countries are taken into account.
Figure 5.1 shows GDP per capita for 2000 and 2010. The figure shows that in 2010, Norway
had the highest GDP per capita, being 49 per cent above the average of all the countries
within the European Union, followed by Denmark and Sweden with 24 and 23 per cent above
the EU average respectively. Compared with the year 2000, most of the economies on the
figure have had a decrease in its GDP per capita, relative to the EU average. Switzerland has
lost its number two spot from the year 2000 and has had the largest decrease in its GDP per
capita relative to the EU average, dropping by 34% from 2000 to 2010. This is presumably
due to a large drop in its export levels, which is major part of country’s GDP19
.
Figure 5.1: GDP per capita price level adjusted, relative to the EU average (PPS, EU27=100)
5.1 Prices
Table 5.1 shows the overall price level, based on AIC20
. It can be seen that Norway,
Switzerland and Denmark have had the highest overall price levels over the last decade. In
2010, Norway topped the ranking, being 56% above the EU average, followed by Switzerland
19
http://www.state.gov/r/pa/ei/bgn/3431.htm 20
See appendix for actual calculations
17
and Denmark with 51% and 47% respectively. The lowest overall price level that year was
measured in Spain, being 4% below the EU average.
Table 5.1: The overall price level on AIC
As PLIs are computed using exchange rates, the exchange rate fluctuations have a direct
impact on prices. Table 5.2 shows the exchange rates against the euro for period 2000-2010.
During this period, Norwegian krone has appreciated against the euro, making Norway more
expensive in comparison to the countries in the euro area21
.
Table 5.2: Exchange rates against euro, annual average
After 2010, Norwegian krone has appreciated even more – by the 27th
of January 2012 the
exchange rate was 7,65 krones for one euro22
, meaning that since 2010 the Norwegian krone
has appreciated by 4,4 per cent.
21
By the end of 2010 16 European countries had adopted the currency Euro: Austria, Belgium, Cyprus, Finland,
France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia,
Spain. From 2011 there are 17 Member States, including the recent entry Estonia. 22
http://www.norges-bank.no/no/prisstabilitet/valutakurser/eur/
2000 2005 2010
Norway 137 145 156
Switzerland 145 142 151
Denmark 132 146 147
Sweden 127 124 126
Finland 120 123 123
France 106 109 111
Italy 98 107 105
Germany 110 103 104
United Kingdom 121 111 102
Spain 84 91 96
Source: Eurostat (prc_ppp_ind)
Price level on AIC (EU27=100)
2000 2005 2010
Swedish krona 8,4452 9,2822 9,5373
Norwegian krone 8,1129 8,0092 8,0043
Danish krone 7,4538 7,4518 7,4473
Swiss franc 1,5579 1,5483 1,3803
Euro 1,0000 1,0000 1,0000
Pound sterling 0,60948 0,68380 0,85784
Source: Eurostat (ert_bil_eur_a)
Exchange rates to EUR
18
5.1.1 The income level and prices
Why do some countries have higher prices than others and what are the underlying reasons
for these prices? According to Harrod-Balassa-Samuelson effect, higher income level (i.e.
GDP) will also lead to higher prices. Is there any empirical evidence for this effect?
Figure 5.2: Price level on AIC (PLI) and GDP per capita (PPS) in 2010
As can be seen from figure 5.2, there is a clear positive relationship between countries income
level and price level. Norway, being the most expensive country among all ten economies,
has also the highest GDP per capita levels, and Spain, being the most inexpensive country in
the survey, has the lowest GDP per capita level among all ten economies. Thus, the empirical
evidence supports the Harrod-Balassa-Samuelson effect that wealthy countries have high
prices.
5.1.2 Productivity and prices
According to Harrod-Balassa-Samuelson effect, rich countries have especially high prices in
nontraded goods. Figure 5.3 (a) and (b) show the relationship between countries income level
and the corresponding price levels on all twelve consumption categories. Figure 5.3 (a) shows
that prices on typical nontraded goods like restaurants, hotels, recreation, culture and
miscellaneous goods and services do tend to be highest in rich countries like Norway,
Switzerland and Denmark, while Spain and Italy seem to have lower prices. For instance,
price difference on restaurants and hotels between the most expensive (Norway) and the least
expensive (Spain) country is 84 per cent. The tendency seems to be the same for other
nontraded goods like recreation and culture and miscellaneous goods and service.
Figure 5.3 (b) shows price levels on consumption groups within health and education.
Norway has the highest prices within health, being 73 per cent above the EU27 average.
Denmark
Germany
Spain
France
Italy
Finland Sweden
UK
Norway Switzerland
80
90
100
110
120
130
140
150
160
20 000 25 000 30 000 35 000 40 000 45 000 50 000
Price
level
on AIC
GDP per capita
19
Prices on education are highest in Switzerland, being 118 per cent above the EU27 average,
followed by Norway and Denmark with 104 and 77 per cent respectively. Again, these figures
correspond well with these countries’ high income levels.
On the other hand, both figure 5.3 (a) and (b) show that prices on nontraded goods (housing,
health, education) seem to vary a lot less than prices on traded goods (food, clothing,
furnishings), and thus seems to contradict the Harrod-Balassa-Samuelsson effect. One of the
explanations in case of Norway can be its agricultural regulations (e.g. trade barriers on food)
and taxation policies on alcohol and tobacco.
20
Figure 5.3(a): GDP per capita23
(PPS) and prices for consumption categories (PLI, EU27=100) in 2010
23
GDP at market prices
DenarmkGermany
SpainFrance
Italy
Finland
Sweden
UK
Norway
Switzerland
10 000
15 000
20 000
25 000
30 000
35 000
40 000
45 000
50 000
60 80 100 120 140 160 180
GDP percapita
Price on food and non-alcoholic beverages
Denmark
Germany
Spain
France
Italy
Finland
Sweden
UK
Norway
Switzerland
10 000
15 000
20 000
25 000
30 000
35 000
40 000
45 000
50 000
60 110 160 210 260
GDP percapita
Price on alcoholic beverages, tobacco and narcotics
DenmarkGermany
Spain
FranceItaly
Finland
SwedenUK
Norway
Switzerland
10 000
15 000
20 000
25 000
30 000
35 000
40 000
45 000
50 000
60 80 100 120 140 160
GDP percapita
Price on clothing and footwear
DenmarkGermany
Spain
FranceItaly
Finland
Sweden
UK
Norway
Switzerland
10 000
15 000
20 000
25 000
30 000
35 000
40 000
45 000
50 000
60 110 160 210
GDP percapita
Price on housing, water, electricity, gas and other fuels
DenmarkGermany
SpainFrance
Italy
Finland
Sweden
UK
Norway
Switzerland
10 000
15 000
20 000
25 000
30 000
35 000
40 000
45 000
50 000
60 80 100 120 140
GDP percapita
Price on household furnishings, equipment and maintenance
DenmarkGermany
SpainFranceItaly
FinlandSweden
UK
Norway
Switzerland
10 000
15 000
20 000
25 000
30 000
35 000
40 000
45 000
50 000
60 80 100 120 140 160
GDP percapita
Price on transport
DenmarkGermany
Spain
FranceItaly
Finland
Sweden
UK
Norway
Switzerland
10 000
15 000
20 000
25 000
30 000
35 000
40 000
45 000
50 000
60 80 100 120 140 160 180
GDP percapita
Price on recreation and culture
DenmarkGermany
SpainFrance
Italy
Finland
Sweden
UK
Norway
Switzerland
10 000
15 000
20 000
25 000
30 000
35 000
40 000
45 000
50 000
60 110 160 210
GDP percapita
Price on restaurants and hotels
DenmarkGermany
SpainFrance
Italy
Finland
Sweden
UK
Norway
Switzerland
10 000
15 000
20 000
25 000
30 000
35 000
40 000
45 000
50 000
60 80 100 120 140 160 180
GDP percapita
Price on miscellaneous goods and services
Source: Eurostat (nama_gdp_c; prc_ppp_ind)
DenmarkGermany
SpainFrance
ItalyFinland
Sweden
UK
Norway
Switzerland
10 000
15 000
20 000
25 000
30 000
35 000
40 000
45 000
50 000
60 80 100 120 140 160
GDP percapita
Communication in PLI (EU27=100)
21
Figure 5.3(b): GDP per capita (PPS) and prices for municipal goods and services (PLI, EU27=100) in 2010
Also here, some branches within nontraded goods and services are partly funded by the
general government and price levels shown on the figure may not reflect the actual price
households must pay for these goods and services. In addition will currency fluctuations have
an impact on prices shown on figure 5.3 (a) and (b).
Harrod-Balassa-Samuelson effect states also that an upward trend in labor productivity will
lead to a higher price level. Table 5.3 shows the real labor productivity per hour worked24
for
each year since 2000. In 2010, productivity levels in Norway per hour worked were priced at
68,8 euros, being 43 per cent above the second highest Denmark . This stems also well with
the GDP per capita levels for Norway shown on figure 5.1 and confirms the Harrod-Balassa-
Samuelson effect that wealthy countries are more productive.
Table 5.3: Real labor productivity per hour worked
24
Considering increasing part-time employment, productivity per hours worked is often preferred to productivity
per worker, as it provides a more accurate measure of labor input. All figures are adjusted for inflation.
DenmarkGermany
SpainFrance
Italy
FinlandSweden
UK
Norway
Switzerland
10 000
15 000
20 000
25 000
30 000
35 000
40 000
45 000
50 000
60 80 100 120 140 160 180
GDP percapita
Price on health
Denmark
Germany
Spain
FranceItaly
FinlandSweden
UK
Norway
Switzerland
10 000
15 000
20 000
25 000
30 000
35 000
40 000
45 000
50 000
60 110 160 210 260
GDP percapita
Price on education
Source: Eurostat (nama_gdp_c; prc_ppp_ind)
2000 2005 2009 2010
Denmark 45,3 48,2 46,4 48,0
Germany 37,3 39,9 40,9 41,5
Spain 27,3 27,9 29,5 30,2
France 42,0 44,9 45,5 46,3
Italy 32,0 32,4 31,8 32,4
Finland 34,4 38,4 39,1 40,6
Sweden 37,0 42,7 42,3 43,6
United Kingdom 33,8 38,0 38,6 :
Norway 65,0 73,1 68,9 68,8
Switzerland 40,8 42,8 : :
: not available
Source: Eurostat (nama_aux_lp)
Real labour productivity per hour worked (EUR)
22
When comparing labor productivity, one should keep in mind that productivity levels are not
only influenced by efficiency of labor force, but also by many other factors outside of
workers' influence, including technology and amount of capital equipment used to produce all
the commodities.
5.1.3 Gross Domestic Product and prices
Figure 5.4 (a) and (b) show the relationship between the cost of GDP and the main
consumption categories. Figure 5.4 (a) shows consumption goods that are typically paid by
the households only. The figure confirms that Norway’s high income level does lead to
correspondingly high prices. For most of the consumption groups, Norway’s prices are more
than 55 per cent above the EU average, in accordance to Harrod-Balassa-Samuelson effect.
Norwegian prices are especially high on alcoholic beverages, tobacco and narcotics, being a
whopping 137 per cent above the EU average, while in UK, the second most expensive
country, prices are “only” 42 per cent above the EU average. Here, Norway’s prices are
strongly affected by high tax levels on both alcohol and tobacco.
Although expensive, Norway does not have the highest price level on all types of goods. This
is clearly the case for communication category, including telecommunication and postal
services, where Norwegian prices are actually 5 per cent below the EU27 average and thus
one of the lowest among all ten economies. For communal services like housing and
electricity, prices are 26 per cent above the EU27 average, but below Switzerland (by 69 per
cent), Denmark (by 32 per cent) and Finland (by 12 per cent). In addition, as this category is
the highest expenditure group for an average household (cf. figure 4.2), it can be assumed that
an average household in Norway has more of its income left to other commodities and
activities than households elsewhere in Europe.
Considering that since 2010 Norwegian krone has appreciated even more against the euro (by
4,4 per cent), the overall price level in Norway has increased even more, making it even more
expensive relative to other countries in the euro area as showed on figure 5.4 (a).
Figure 5.4 (b) shows the price of GDP and municipal services like health and education,
based on the EU average. Here, the tendency is the same as for figure 5.4 (a), showing that
prices are highest in wealthiest countries. In 2010, Norway had the highest price level on
health, being 73 per cent above the EU average, followed by Denmark and Switzerland with
53 and 48 per cent respectively. The lowest prices were recorded in Spain, being 10 per cent
23
below the EU average. Also for educational services, Norway, Switzerland and Denmark hold
the top spots regarding countries with highest price levels. Here, Switzerland topped the
comparison, being 118 per cent above the EU average, followed by Norway and Denmark
with 104 and 77 per cent respectively.
When comparing price levels for municipal services, one must take into account the fact that
prices on health and education are calculated differently than market prices and do not reflect
the actual prices (cf. section 3.1.3). In addition, the fact these services are partly covered by
general government, makes the share that households’ actually pay for these lower than
showed on the figure.
24
Figure 5.4(a): Prices on GDP and consumption categories, both measured in PLIs, in 2010 (EU27=100)
Denmark
Germany
Spain
France
Italy
Finland
Sweden
UK
NorwaySwitzerland
60
70
80
90
100
110
120
130
140
150
160
60 80 100 120 140 160 180
Pricelevel
for GDP
Price on food and non-alcoholic beverages
Denmark
Germany
Spain
France
Italy
Finland
Sweden
UK
NorwaySwitzerland
60
70
80
90
100
110
120
130
140
150
160
60 110 160 210 260
Pricelevel
for GDP
Price on alcoholic beverages, tobacco and narcotics
Denmark
Italy
Spain
France
Germany
FinlandSweden
UK
NorwaySwitzerland
60
70
80
90
100
110
120
130
140
150
160
60 80 100 120 140 160
Pricelevel
for GDP
Price on clothing and footwear
Denmark
Germany
Spain
France
Italy
FinlandSweden
UK
Norway Switzerland
60
70
80
90
100
110
120
130
140
150
160
60 110 160 210
Pricelevel
for GDP
Price on housing, water, electricity, gas and other fuels
Denmark
Germany
Spain
France
Itay
FinlandSweden
UK
NorwaySwitzerland
60
70
80
90
100
110
120
130
140
150
160
60 80 100 120 140
Pricelevel
for GDP
Price on household furnishings, equipment and maintenance
Denmark
Germany
Spain
France
Italy
FinlandSweden
UK
NorwaySwitzerland
60
70
80
90
100
110
120
130
140
150
160
60 80 100 120 140 160
Pricelevel
for GDP
Price on transport
Denmark
Germany
Spain
France
Italy
FinlandSweden
UK
Norway Switzerland
60
70
80
90
100
110
120
130
140
150
160
60 80 100 120 140 160
Pricelevel
for GDP
Price on communication
Denmark
Italy
Spain
France
Germany
FinlandSweden
UK
NorwaySwitzerland
60
70
80
90
100
110
120
130
140
150
160
60 80 100 120 140 160 180
Pricelevel
for GDP
Price on recreation and culture
Denmark
Italy
Spain
France
Germany
FinlandSweden
UK
NorwaySwitzerland
60
70
80
90
100
110
120
130
140
150
160
60 80 100 120 140 160 180 200
Pricelevel
for GDP
Price on restaurants and hotels
Denmark
Italy
Spain
FranceGermany
FinlandSweden
UK
NorwaySwitzerland
60
70
80
90
100
110
120
130
140
150
160
60 80 100 120 140 160 180
Pricelevel
for GDP
Price on miscellaneous goods and servicesSource: Eurostat (prc_ppp_ind)
25
Figure 5.4(b): Prices on GDP and municipal goods and services, both measured in PLIs, in 2010 (EU27=100)
5.1.4 Relative consumption and relative prices
Figure 5.2 showed that there is a positive relationship between countries’ income level and
the corresponding prices. In section 5.1.3 we saw that a high overall price level does not
necessarily imply high prices on all consumption categories. In this section we want to
explore further the differences in prices across consumption categories, for example why
prices on restaurants and hotels are very high in Norway, while the price on communication is
not high relative to the price in other countries. In particular, we want to distinguish between
supply and demand effects. If the difference across countries is due to differences on the
supply side, we would expect favorable supply conditions in one sector to lead to high
quantity and low prices. Thus, we would expect a negative correlation between relative
quantity and relative prices. In contrast, if the difference across countries is due to differences
on the demand side, we would expect high demand to lead to both high quantity and high
prices, i.e. there would be a positive correlation between relative quantity and relative prices.
Figures 5.5 (a) and (b) show the results25
. For three categories, like alcoholic beverages etc,
communication, and restaurants and hotels, we see a clear negative relationship, suggesting
that the difference is on the supply side. For example, the high price on alcohol and tobacco in
Norway reflects high taxes on these products, and the high price seems to have a clear
negative impact on households’ consumption of alcohol and tobacco.
There are no consumption categories with a strong and clear positive correlation between
relative price and relative consumption, which would have indicated demand driven
25
Relative consumption: defined as real expenditure per consumption category relative to total real expenditure;
relative price: defined as price of each consumption category relative to price on AIC in general.
Denmark
Germany
Spain
France
Italy
Finland
Sweden
UK
NorwaySwitzerland
60
70
80
90
100
110
120
130
140
150
160
60 80 100 120 140 160 180
Pricelevel
for GDP
Price level on health
Denmark
Germany
Spain
France
Italy
FinlandSweden
UK
NorwaySwitzerland
60
70
80
90
100
110
120
130
140
150
160
60 110 160 210 260
Pricelevel
for GDP
Price level on education
Source: Eurostat (prc_ppp_ind)
26
differences. However, for a number of categories, the relationship is rather mixed, suggesting
that the differences are caused by a multitude of factors.
27
Figure 5.5(a): Relative consumption and relative prices on consumption categories in 2010 (EU27=100)
Figures above 1 indicate higher price than the local overall average.
DenmarkGermany
Spain
France
Italy
Finland
Sweden
UK
NorwaySwitzerland
0,05
0,06
0,07
0,08
0,09
0,10
0,11
0,12
0,70 0,80 0,90 1,00 1,10
Relative
consuption
Relative price
Food
Denmark
Germany
Spain
France
Italy
Finland
Sweden
UKNorway
Switzerland
0,01
0,02
0,03
0,04
0,05
0,50 0,70 0,90 1,10 1,30 1,50 1,70
Relativeconsuption
Relative price
Alcoholic beverages, tobacco and narcotics
Denmark
Germany
Spain
France
Italy
FinlandSweden
UK
Norway
Switzerland
0,02
0,03
0,04
0,05
0,06
0,07
0,08
0,70 0,80 0,90 1,00 1,10
Relativeconsumption
Relative price
Clothing and footwear
DenmarkGermany
Spain
FranceItaly
Finland
Sweden
UKNorway
Switzerland
0,14
0,15
0,16
0,17
0,18
0,19
0,20
0,60 0,80 1,00 1,20 1,40
Relativeconsuption
Relative price
Housing, water, electricity, gas and other fuels
Denmark
Germany
Spain
France
Italy
FinlandSweden UK
Norway
Switzerland
0,02
0,03
0,03
0,04
0,04
0,05
0,05
0,06
0,06
0,07
0,65 0,75 0,85 0,95 1,05 1,15
Relativeconsuption
Relative price
Household furnishings, equipment and maintenance
Denmark
Germany
Spain
France
Italy
Finland
Sweden
UK
Norway
Switzerland
0,07
0,08
0,08
0,09
0,09
0,10
0,10
0,11
0,11
0,12
0,12
0,70 0,80 0,90 1,00 1,10
Relativeconsumption
Relative price
Transport
Denmark
Germany
Spain
France
Italy
Finland
Sweden
UK
NorwaySwitzerland
0,01
0,01
0,02
0,02
0,03
0,03
0,04
0,40 0,90 1,40 1,90
Relativeconsumption
Relative price
Communication
Denmark
Germany
Spain
France
Italy
Finland
Sweden
UKNorway
Switzerland
0,05
0,06
0,07
0,08
0,09
0,10
0,11
0,12
0,85 0,90 0,95 1,00 1,05
Relativeconsumption
Relative price
Recreation and culture
Denmark
Germany
Spain
France
Italy
Finland
Sweden
UK
Norway
Switzerland
0,01
0,03
0,05
0,07
0,09
0,11
0,13
0,15
0,90 0,95 1,00 1,05 1,10 1,15 1,20
Relativeconsumption
Relative price
Restaurants and hotels
Denmark
Germany
Spain
France
Italy
Finland
Sweden
UK
NorwaySwitzerland
0,06
0,08
0,10
0,12
0,14
0,16
0,18
0,20
0,90 0,95 1,00 1,05 1,10
Relativeconsumption
Relative price
Miscellaneous goods and services
Source: Eurostat (prc_ppp_ind)
28
Figure 5.5(b): Relative consumption and relative prices on municipal goods and services in 2010 (EU27=100)
Figures above 1 indicate higher price than the local overall average.
Figure 5.5 (b) shows that Norway has one of the highest relative high prices on both health
and education, while having one of the lowest relative consumption levels. Here, one should
bear in mind the large uncertainty associated with measuring prices in these sectors (cf.
section 3.1.3). If, say, the pricing on health in Norway is incorrectly measured to be too high,
because productivity is underestimated, then the volume figure will be incorrectly too low as
well. In addition, in most of the countries, including Norway, these municipal services are
partly paid for by the government, and thus do not show the actual relationship between price
and households consumption.
5.2 Wages
In order to find out how much households can actually afford, prices should be adjusted to
households’ earnings. Table 5.4 shows the annual earnings for an average employee26
.
26
See appendix for the underlying PPPs
Denmark
Germany
Spain
France
Italy
Finland
Sweden
UK
Norway
Switzerland
0,10
0,11
0,11
0,12
0,12
0,13
0,13
0,14
0,14
0,90 0,95 1,00 1,05 1,10 1,15
Relativeconsumption
Relative price
Health
Denmark
GermanySpain
France
Italy
Finland
Sweden
UK
Norway
Switzerland
0,04
0,05
0,05
0,06
0,06
0,07
0,07
0,08
0,08
0,09
0,80 1,00 1,20 1,40 1,60
Relativeconsumption
Relative price
Education
Source: Eurostat (prc_ppp_ind)
29
Table 5.4: Earnings, taxes and social security contributions for an average employee in Europe (EU27=100)
After adjusting for price and currency differences, the table shows that in 2009, the highest
average gross wages were recorded in UK (PPS 40 013), Germany (PPS 38 691) and Norway
(PPS 37 331). The lowest gross wages were recorded in Italy (PPS 26 192) and Spain (PPS
24 772). At the same year, the highest average taxes were paid in Denmark (PPS 9 809),
Germany (PPS 8 008) and Norway (PPS 7 837), and the highest average social contributions
were paid in Germany (PPS 7 980), France (PPS 3 953) and UK (PPS 3 659). Measured in net
earnings though, Switzerland (PPS 30 567), UK (PPS 29 879) and Norway (PPS 26 582) had
the highest earnings. The lowest average net earnings in 2009 were recorded in Spain (PPS
19 828) and Italy (PPS 18 391). The difference between gross and net earnings reflect that
Germany had the highest taxes and social security contributions (PPS 15 988), higher than
both in UK (58%), Norway (+49%) and Switzerland (+175%).
5.2.1 Wages and prices
Do wages have a strong impact on consumer prices? The Harrod-Balassa-Samuelson effect
suggests that they have. In countries with high productivity level, GDP is high, wages are
high, but prices are also high because the productivity difference is smaller for non-traded
goods. In this section we want to explore this relationship further. In particular, we want to
see whether a high wage level leads to high prices in all consumption categories, or whether
there are differences across categories. As we are exploring to what extent the Harrod-
Balassa-Samuelson effect can be seen via wages, we use wages measured in PPS, i.e. adjusted
for differences in price levels.27
If one only focused on the cost side, it would be relevant to
consider the relationship between wages in a common currency, i.e. without price adjustment,
27
This is the reason why gross wages are higher in the UK and Germany than in Norway. Without adjusting for
price differences, wages are higher in Norway.
30
and category prices. Figures 5.6 (a) and (b) illustrate the relationship between average gross
wages and prices on consumer goods and services. In case of Norway, there seems to be a
clear positive relationship between wages and prices, with exceptions of housing and other
communal services and communication. For housing and other communal services,
Norway’s relative price level is higher than in UK and Germany, but lower than in several
other countries like Switzerland, Denmark, Finland and France. Within communication,
prices in Norway are one of the lowest among all consumption groups. Both exceptions may
partly be due to different government subsidization programs on these kinds of services (e.g.
electricity and postal services). Also within municipal services like health and education
(showed on figure 5.6 (b)), Norway has one of the highest relative prices and one of the
highest corresponding wage levels. Thus, in Norway, the overall wage level seems to be well
reflected in its correspondingly high prices. These prices seem to be especially high within
nontraded goods like restaurants, hotels, miscellaneous goods and services, as well as in
health and educational services, confirming the Harrod-Balassa-Samuelson effect.
In addition to wages, the final consumer prices are also influenced by other factors like
differences in consumer tastes and demand, quantities produced as well as different taxation
on goods and services.
31
Figure 5.6(a): Average gross wages (PPS) and prices on consumption categories (PLI, EU27=100) in 2009
Denmark
Germany
Spain
France
Italy
FinlandSweden
UK
Norway
Switzerland
20 000
25 000
30 000
35 000
40 000
45 000
60 80 100 120 140 160
Averagegross wage
Price on food and non-alcoholic beverages
Denmark
Germany
Spain
France
Italy
FinlandSweden
UK
NorwaySwitzerland
20 000
25 000
30 000
35 000
40 000
45 000
60 110 160 210 260
Averagegrosswage
Price on alcoholic beverages, tobacco and narcotics
Denmark
Germany
Spain
France
Italy
FinlandSweden
UK
NorwaySwitzerland
20 000
25 000
30 000
35 000
40 000
45 000
60 80 100 120 140 160
Averagegrosswage
Price on clothing and footwear
Denmark
Germany
Spain
France
Italy
FinlandSweden
UK
Norway Switzerland
20 000
25 000
30 000
35 000
40 000
45 000
60 110 160 210
Averagegrosswage
Price on housing, water, electricity, gas and other fuels
Denmark
Germany
Spain
France
Italy
FinlandSweden
UK
NorwaySwitzerland
20 000
25 000
30 000
35 000
40 000
45 000
60 80 100 120 140
Averagegrosswage
Price on household furnishings, equipment and maintenance
Denmark
Germany
Spain
France
Italy
FinlandSweden
UK
NorwaySwitzerland
20 000
25 000
30 000
35 000
40 000
45 000
60 80 100 120 140 160
Averagegrosswage
Price on transport
Denmark
Germany
Spain
France
Italy
FinlandSweden
UK
NorwaySwitzerland
20 000
25 000
30 000
35 000
40 000
45 000
60 80 100 120 140
Averagegrosswage
Price on communication
Denmark
Germany
Spain
France
Italy
FinlandSweden
UK
NorwaySwitzerland
20 000
25 000
30 000
35 000
40 000
45 000
60 80 100 120 140 160
Averagegrosswage
Price on recreation and culture
Denmark
Germany
Spain
France
Italy
Finland
Sweden
UK
NorwaySwitzerland
20 000
25 000
30 000
35 000
40 000
45 000
60 80 100 120 140 160 180
Averagegrosswage
Price on restaurants and hotels
Denmark
Germany
Spain
France
Italy
FinlandSweden
UK
Norway
Switzerland
20 000
25 000
30 000
35 000
40 000
45 000
60 80 100 120 140 160
Averagegrosswage
Price on miscellaneous goods and services
Source: Eurostat (prc_ppp_ind; earn_nt_net)
32
Figure 5.6(b): Average gross wages (PPS) and prices on municipal goods and services (PLI, EU27=100) in 2009
5.2.2 The effect of wages at the sectoral level
In the previous section, we saw that high wages as expected in general are associated with
high prices for various consumption categories. In order to shed additional light on this effect,
we now consider the relationship between sectoral wages and sectoral prices. Different
mechanisms might give rise to different correlations. For example, a high price in one sector
might be due to high wages in that sector, inducing a positive correlation. Alternatively,
favorable supply conditions in one sector might lead to both high wages and low prices in the
sector, implying that wages are negatively correlated with prices. Figure 5.7 (a) and (b) show
the relationship between sectoral average gross wage and the corresponding prices28
. Again,
for several consumption categories like food, clothing and restaurants, there is a positive co-
variation between sectoral gross wage level and the corresponding prices. Thus, within these
sectors the wages seem to lead to high prices. In contrast, for the communication sector we
observe that high wages go together with low prices, clearly evident not only for Norway, but
also its neighboring country Sweden. The figure shows that in all ten economies the
communication sector has the highest wages, varying between PPS 35 000 – 53 000. Here,
Spain has the lowest average gross wage (PPS 35 013) and the highest prices (30 per cent
above EU average), while Norway has one of the lowest prices (22 per cent below the EU27
average) and one of the highest wages (PPS 45 515). This observation might be influenced by
the fact that in Norway, the government subsidizes postal services, making it possible to have
low prices in spite of high wage levels. But it can also be argued that this negative correlation
between wages and prices may be due to the higher level of productivity within this sector as
28
Note that the sectoral categories are not exactly the same for the wage measures and the price measures
Denmark
Germany
Spain
France
Italy
FinlandSweden
UK
NorwaySwitzerland
20 000
25 000
30 000
35 000
40 000
45 000
60 80 100 120 140 160 180
Averagegrosswage
Price on health
Denmark
Germany
Spain
France
Italy
FinlandSweden
UK
Norway
Switzerland
20 000
25 000
30 000
35 000
40 000
45 000
60 110 160 210
Averagegrosswage
Price on education
Source: Eurostat (prc_ppp_ind; earn_nt_net)
33
it also includes Information Technology services, where one would expect productivity
growth to be high.
Within the communal sector like gas and electricity, Norwegian average wages are the second
highest among all ten economies, but its corresponding prices are much lower than in many
other countries. Thus, also in this sector, there seems to be a negative correlation between
wages and prices, but here, relatively low prices are due to the governmental support to the
suppliers rather than the cause of productivity advantages as may be the case for
telecommunication services.
34
Figure 5.7(a): Sectoral wages (PPS) and prices on consumption categories (PLI, EU27=100) in 2009
DenmarkGermany
Spain
FranceFinland
SwedenUK
Norway
Switzerland
20 000
22 000
24 000
26 000
28 000
30 000
32 000
34 000
36 000
38 000
60 80 100 120 140 160
Averagegross wage
within wholesale and
retail trade
Price on food and non-alcoholic beverages
DenmarkGermany
Spain
FranceFinland
Sweden UK
Norway
Switzerland
20 000
22 000
24 000
26 000
28 000
30 000
32 000
34 000
36 000
38 000
60 110 160 210 260
Averagegross wage
within wholesale and
retail trade
Price on Alcoholic beverages, tobacco and narcotics
DenmarkGermany
Spain
FranceFinland
SwedenUK
Norway
Switzerland
20 000
22 000
24 000
26 000
28 000
30 000
32 000
34 000
36 000
38 000
60 80 100 120 140
Averagegross wage
within wholesale and
retail trade
Price on household furnishings, equipment and maintenance
DenmarkGermany
Spain
FranceFinland
SwedenUK
Norway
Switzerland
20 000
22 000
24 000
26 000
28 000
30 000
32 000
34 000
36 000
38 000
60 80 100 120 140 160
Averagegross wage
within wholesale and
retail trade
Price on clothing and footwear
DenmarkGermany
Spain
FranceFinland
SwedenUK
Norway
Switzerland
20 000
22 000
24 000
26 000
28 000
30 000
32 000
34 000
36 000
38 000
60 80 100 120 140 160
Averagegross wage
within wholesale and
retail trade
Price on recreation and culture
Denmark
Germany
Spain
FranceFinlandSweden
UK
Norway
Switzerland
20 000
25 000
30 000
35 000
40 000
45 000
60 110 160 210
Averagegross wage
witinindustri
Price on housing, water, electricity, gas and other fuels
Denmark
Germany
Spain
France Finland
Sweden
UK
NorwaySwitzerland
20 000
22 000
24 000
26 000
28 000
30 000
32 000
34 000
36 000
38 000
40 000
60 80 100 120 140 160
Average gross wage
witihintransport
and storage
Price on transport
Denmark
Germany
Spain
France
Finland
Sweden
UK
Norway
Switzerland
20 000
25 000
30 000
35 000
40 000
45 000
50 000
55 000
60 80 100 120 140
Averagegross wage
withininformation
and communication
Price on communication
Denmark
Germany
France
Finland
UK
Norway
Switzerland
20 000
22 000
24 000
26 000
28 000
30 000
32 000
60 80 100 120 140 160 180
Averagegross wage
withinaccommo-dation and
food service activities
Price on restaurants and hotels
Denmark
Germany
Spain
France
Finland
Sweden
UKNorway
Switzerland
20 000
22 000
24 000
26 000
28 000
30 000
32 000
34 000
36 000
38 000
60 80 100 120 140 160
Averagegross wage
withinhuman
health and social work
activities
Price on miscellaneous goods and services
Source: Eurostat (prc_ppp_ind; earn_gr_nace2)
35
Figure 5.7(b): Sectoral wages (PPS) and prices within municipal services (PLI, EU27=100) in 2009
Although there doesn’t seem to be any significant differences between the co-variation of
gross average wages and sectoral wages against their corresponding prices, the sectoral
approach might give a better indication of differences in tax levels on different goods and
services as well as the level of government subsidization within each sector.
5.2.3 Relative wages and relative prices
So far, prices do seem to be linked to both average and sectoral gross wages. But exactly how
strong is this relationship? Does high sectoral wage correspond to equally high prices? And
how does the productivity in different sectors influence the price level?
Figure 5.8 (a) and (b) show the gross wage on a sectoral level relative to the overall average in
the economy and the corresponding relative price.29
Position above one indicates higher
sectoral wage and/or price than their corresponding overall averages. This means that if high
prices reflect high wage costs on a sectoral level, we would expect a positive correlation in the
diagrams: if, say, food is especially expensive in Norway, wages would also be high in the
food sector.
In seven out of twelve consumption categories (i.e. food and non-alcoholic beverages;
alcoholic beverages, tobacco and narcotics; transport; restaurants and hotels; miscellaneous
goods and services; health; education), the Norwegian relative price level is above its overall
average, while the corresponding relative wage is below its corresponding average. This
indicates that within these categories, the price level is actually higher than the corresponding
sectoral wage level would suggest. Here alcohol and food (i.e. imported food) are highly
taxed by the government, driving consumer prices on these groups upwards. While high
29
Relative gross wage: defined as sectoral gross wage relative to average gross wage in general, relative price:
defined as price on each consumption category relative to total price on AIC in general.
Denmark
Germany
Spain
France
Finland
Sweden
UK Norway
Switzerland
20 000
22 000
24 000
26 000
28 000
30 000
32 000
34 000
36 000
38 000
60 110 160 210
Averagegross wage
withinhuman health
and socialwork activities
Price on health services
Denmark
Germany
Spain
Finland
Sweden
UK
Norway
Switzerland
20 000
25 000
30 000
35 000
40 000
45 000
60 110 160 210
Averagegross wage
within education
Price on education services
Source: Eurostat (prc_ppp_ind; earn_gr_nace2)
36
prices within restaurants and hotels are clearly due to the Harrod-Balassa-Samuelson effect,
meaning that high productivity in one sector (Norwegian oil and gas sector) has pushed up
wages, which again are transferred on prices in nontraded sectors like restaurants and hotels.
On the other hand, within communication, housing and other communal goods and services,
prices in Norway are below the overall average, while their corresponding sectoral wage
levels are above the overall average gross wages. The price and wage relationship seems to be
well correlated within categories including clothing and household furnishings, where both
price and its corresponding sectoral wage is below the overall average.
37
Figure 5.8(a): Relative wages and relative prices on consumption categories (PPS, PLI, EU27=100) in 2009.
Figures above 1 indicate higher wage and/or price level than the overall local average.
Denmark
GermanySpain
France
Finland
Sweden
UK
NorwaySwitzerland
0,60
0,65
0,70
0,75
0,80
0,85
0,90
0,95
1,00
1,05
1,10
0,90 0,95 1,00 1,05 1,10
Relativegrosswage
Relative price
Food and non-alcoholic beverages
Denmark
Germany
SpainFrance
Finland
Sweden
UK
Norway
Switzerland
0,60
0,65
0,70
0,75
0,80
0,85
0,90
0,95
1,00
1,05
1,10
0,50 1,00 1,50 2,00
Relativegrosswage
Relative price
Alcoholic beverages, tobacco and narcotics
Denmark
Germany
SpainFranceFinland
Sweden
UK
NorwaySwitzerland
0,60
0,65
0,70
0,75
0,80
0,85
0,90
0,95
1,00
1,05
1,10
0,80 0,85 0,90 0,95 1,00 1,05
Relativegrosswage
Relative price
Clothing and footwear
Denmark
GermanySpainFranceFinland
Sweden
UK
Norway
Switzerland
0,60
0,65
0,70
0,75
0,80
0,85
0,90
0,95
1,00
1,05
1,10
0,70 0,80 0,90 1,00 1,10 1,20
Relativegrosswage
Relative price
Household furnishings, equipment and maintenance
Denmark
Germany
Spain
FranceFinland
Sweden
UK
Norway
Switzerland
0,60
0,70
0,80
0,90
1,00
1,10
1,20
0,70 0,90 1,10 1,30 1,50
Relativegrosswage
Relative price
Housing, water, electricity, gas and other fuels
Denmark
Germany
Spain
FranceFinland
SwedenUK
Norway
Switzerland
0,60
0,70
0,80
0,90
1,00
1,10
1,20
0,70 0,80 0,90 1,00 1,10
Relativegrosswage
Relative price
Transport
DenmarkGermany
SpainFrance
FinlandSweden
UKNorway
Switzerland
0,80
0,90
1,00
1,10
1,20
1,30
1,40
1,50
0,50 0,70 0,90 1,10 1,30 1,50
Relativegrosswage
Relative price
Communication
Denmark
GermanySpainFrance Finland
Sweden
UK
NorwaySwitzerland
0,60
0,65
0,70
0,75
0,80
0,85
0,90
0,95
1,00
1,05
1,10
0,85 0,90 0,95 1,00 1,05
Relativegrosswage
Relative price
Recreation and culture
Denmark
Germany
SpainFrance
Finland
SwedenUK
Norway
Switzerland
0,50
0,55
0,60
0,65
0,70
0,75
0,80
0,85
0,90
0,80 0,85 0,90 0,95 1,00 1,05 1,10 1,15
Relativegrosswage
Relative price
Restaurants and hotels
Denmark
Germany
Spain
FranceFinlandSweden
UK
Norway
Switzerland
0,80
0,85
0,90
0,95
1,00
1,05
1,10
1,15
1,20
1,25
0,90 0,95 1,00 1,05 1,10
Relativegrosswage
Relative price
Miscellaneous goods and services
Source: Eurostat (prc_ppp_ind; earn_gr_nace2
38
Figure 5.8(b): Relative wages and relative prices on municipal goods and services (PPS, PLI, EU27=100) in
2009. Figures above 1 indicate higher wage and/or price level than the overall local average.
Figure 5.8 (b) shows the relative wage and price relationship for municipal services within
health and education. Here, prices on both health and education are above the overall average,
but the corresponding sectoral wage is below the average overall gross wage. Thus it seems
that health and education services are either overpriced or its corresponding sectoral wages
are too low.
So far, we have seen that both average and sectoral gross wages influence consumer prices.
What is the relationship between wages and consumption? And wages and country’s income
level, GDP? Figure 5.9 shows the results. Norway’s high wage level corresponds to equally
high consumption level and the income level and is, as expected, positively correlated to
wages.
Again, due to the type of measurement used (PPS), gross wages are high measured in PPS for
countries with lower price levels as shown in case of UK and Germany.
Figure 5.9: Average gross wages, consumption expenditure and GDP per capita (all in PPS) in 2009
Denmark
Germany
Spain
France
Finland Sweden
UK
Norway
Switzerland
0,60
0,70
0,80
0,90
1,00
1,10
1,20
1,30
0,90 0,95 1,00 1,05 1,10 1,15
Relativegrosswage
Relative price
Health
DenmarkGermany
Spain
Finland
SwedenUK
Norway
Switzerland
0,60
0,70
0,80
0,90
1,00
1,10
1,20
0,80 1,00 1,20 1,40 1,60
Relativegrosswage
Relative price
Education
Source: Eurostat (prc_ppp_ind; earn_gr_nace2
Denmark
Germany
Spain
France
Italy
Finland
Sweden
UK
NorwaySwitzerland
15 000
20 000
25 000
30 000
35 000
40 000
45 000
15 000 20 000 25 000 30 000 35 000 40 000 45 000
Averagegrosswage
GDP per capita
Denmark
Germany
Spain
France
Italy
FinlandSweden
UK
NorwaySwitzerland
15 000
20 000
25 000
30 000
35 000
40 000
45 000
15 000 17 000 19 000 21 000 23 000 25 000
Averagegrosswage
Consumption expenditure based on AIC
Source: Eurostat (earn_nt_net; prc_ppp_ind; nama_gdp_c)
39
5.2.4 Net wages and prices
Gross wages reflect labor costs for manufacturers. When manufacturers set the price of a good
they take the cost of labor into account, as figures 5.6 and 5.7 confirmed. But how much can
households actually afford, after deduction of taxes and social security?
Figure 5.10 (a) and (b) show the relationship between average net wages and prices for all
twelve consumption categories. For Norway, there is a strong positive relationship between
net wage and its corresponding price level within most of the categories, including prices on
health and education. Norwegian households are thus relatively well-off, also in net values.
But, although Norway has one of the highest net wages together with the fact that it has the
highest overall price level (cf. table 5.1), means that, on average, consumers in UK and
Switzerland should be better off as their net wages are above Norway, while their prices are
below Norway. On the other hand, within the communication sector, Norway’s prices are
below both UK and Switzerland and within housing and communal services, Norwegian
prices are below Switzerland. As mentioned before, the latter observations are probably due
to local political decision making. In addition, recalling figure 4.2, which shows that
communal services is the largest expenditure post for an average household, prices within this
sector will put relatively large pressure on households’ budget.
However, and as mentioned before, the fact that wages on the figure are measured in PPSs,
real wage levels (in local currency and/or in euros) in UK as well as most of the other
countries are somewhat lower than the figure shows, and will most likely lead to a different
outcome than shown on figures 5.10 (a) and (b).
40
Figure 5.10(a): Average net wages (PPS) and prices on consumption categories (PLI, EU27=100) in 2009
Denmark
Germany
SpainFrance
Italy
Finland
Sweden
UK
Norway
Switzerland
10 000
15 000
20 000
25 000
30 000
35 000
60 80 100 120 140 160
Price on food and non-alcoholic beverages
Averagenet
wageDenmark
Germany
SpainFrance
Italy
Finland
Sweden
UK
Norway
Switzerland
10 000
15 000
20 000
25 000
30 000
35 000
60 110 160 210 260
Averagenet
wage
Price on alcoholic beverages, tobacco and narcotics
Denmark
Germany
Spain France
Italy
Finland
Sweden
UK
Norway
Switzerland
10 000
15 000
20 000
25 000
30 000
35 000
60 80 100 120 140 160
Averagenet
wage
Price on clothing and footwear
Denmark
Germany
SpainFrance
Italy
Finland
Sweden
UK
Norway
Switzerland
10 000
15 000
20 000
25 000
30 000
35 000
60 110 160 210
Averagenet
wage
Price on housing, water, electricity, gas and other fuels
Denmark
Germany
SpainFrance
Italy
Finland
Sweden
UK
Norway
Switzerland
10 000
15 000
20 000
25 000
30 000
35 000
60 70 80 90 100 110 120 130
Averagenet
wage
Price on household furnishings, equipment and maintenance
Denmark
Germany
SpainFrance
Italy
Finland
Sweden
UK
Norway
Switzerland
10 000
15 000
20 000
25 000
30 000
35 000
60 80 100 120 140 160
Averagenet
wage
Price on transport
Denmark
Germany
Spain
France
Italy
Finland
Sweden
UK
Norway
Switzerland
10 000
15 000
20 000
25 000
30 000
35 000
60 80 100 120 140
Averagenet
wage
Price on communication
Denmark
Germany
SpainFrance
Italy
Finland
Sweden
UK
Norway
Switzerland
10 000
15 000
20 000
25 000
30 000
35 000
60 80 100 120 140 160
Averagenet
wage
Price on recreation and culture
Denmark
Germany
Spain France
Italy
Finland
Sweden
UK
Norway
Switzerland
10 000
15 000
20 000
25 000
30 000
35 000
60 80 100 120 140 160
Averagenet
wage
Price on miscellaneous goods and services
Denmark
Germany
Spain
France
Italy
Finland
Sweden
UK
Norway
Switzerland
10 000
15 000
20 000
25 000
30 000
35 000
60 80 100 120 140 160 180
Averagenet
wage
Price on restaurants and hotels
Source: Eurostat (prc_ppp_ind; earn_nt_net)
41
Figure 5.10(b): Average net wages (PPS) and prices on municipal goods and services (PLI, EU27=100) in 2009
So far, we can confirm that high wages are reflected in both high prices and in high
consumption levels. But, will there be any differences when net wages are measured against
consumption goods and services that households themselves must pay for? Thus, what is the
outcome when net wages are measured against Households Final Consumption Expenditure
and not against Actual Individual Consumption?
Figure 5.11 shows the results. In net values, Norway’s position is somewhat weaker than in
gross values, but the overall picture stays the same –high price level is well reflected in
wages.
Figure 5.11: Average net wages and consumption paid by households only in 2009 (both in PPS)
Denmark
Germany
SpainFrance
Italy
Finland
Sweden
UK
Norway
Switzerland
10 000
15 000
20 000
25 000
30 000
35 000
60 80 100 120 140 160 180
Averagenet
wage
Price on health
Denmark
Germany
SpainFrance
Italy
FinlandSweden
UK
Norway
Switzerland
10 000
15 000
20 000
25 000
30 000
35 000
60 110 160 210
Averagenet
wage
Price on education
Source: Eurostat (prc_ppp_ind; earn_nt_net)
42
6. Concluding remarks
In this thesis, I have looked at Norway’s price level from the consumer side of the economy
and compared it to other wealthy countries in Europe. The goal has been to explore to what
extent Norway is as expensive as is commonly known
The results show that prices are much higher in Norway for most of the consumption
categories. But there are also some exceptions. These exceptions are the consumption
categories including housing, water, electricity, gas and other fuels and the communication
sector. The results show also that prices on traded goods face international competition,
making them more flexible to price changes and leading to smaller price variations between
the countries, while firms producing nontraded goods and services have the power to set their
own price meaning that prices on these types of goods and services in wealthy countries are
typically much higher. These results are also in accordance to Harrod-Balassa-Samuelson
effect.
In order to find out citizens actual living standards, one should not only base the conclusions
on GDP per capita figures, but also compare these figures relative to price level, as this will
give a more realistic picture of the economic conditions in the country. If one looks at what it
costs for an average citizen to live an average life, then Norway doesn't come out so bad. This
is because high price levels correspond to equally high wages and lots of vital services like
healthcare and education are provided through the state, which in other countries have to be
paid for by the individual. Norway is indeed a very expensive country compared to many
other countries, but citizens in those countries must themselves pay for health insurance,
school fees etc. that citizens in Norway can get for free or at a very low cost.
When comparing price levels across countries, one should remember that currency
fluctuations have a large impact on market prices, when measured in a common currency like
the euro. Since 2010, Norwegian krone has appreciated by 4,4 per cent, making nontraded
goods even more expensive. Adjusting for the domestic inflation rate in the period, which was
1,230 and 2,731 per cent respectively as measured by the Consumer Price Index for Norway
and the Euro area, the real appreciation in Norway has been per cent
30 Annual, per Dec. 2011: http://www.ssb.no/kpi/ 31 Annual, per Dec. 2011: http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/2-17012012-AP/EN/2-17012012-AP-EN.PDF
43
since 2010. Thus, Norway has become an even more expensive country than in 2010, as
compared to other European countries. This will have an effect for e.g. the tourists coming to
Norway, but no direct effect for local citizens in Norway as the real appreciation is also
reflected in higher wages.
In addition, although many surveys show that Norway is an expensive country, one has to
keep in mind that the way surveys are constructed are often based on different consumption
baskets reflecting different preferences. A person living in a large city as an expat could mean
that the consumption basket excludes accommodation costs, which is a large expenditure post
for locals, while another survey might include items like luxury car in the consumption
baskets, which is hit very hard by Norway's tax structure on cars. All countries have different
taxation rules on products as well as on labor force, which again will have an impact on
wages and prices on different goods and services and thus on the final product price.
44
7. References
Obstfeldt, M and K. Rogoff (1996): “Foundations of International Macroeconomics” ch. 4, MIT Press, Cambridge, Massachusetts
7.1 Web pages
1. Eurostat (2008): “European Price Statistics - An overview”,
http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-70-07-038/EN/KS-70-07-
038-EN.PDF
2. Tulin, V. and Krajnyák, K. (2010): “How Expensive is Norway? New International
Relative Price Measure”, IMF Working Paper No. 10/133,
http://www.imf.org/external/pubs/ft/wp/2010/wp10133.pdf
3. Eurostat (2010): “Europe in figures - Eurostat yearbook 2010”,
http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-CD-10-220/EN/KS-CD-10-
220-EN.PDF
4. Eurostat (2011): “Comparative price levels of consumer goods and services”,
http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Comparative_price_lev
els_of_consumer_goods_and_services
5. Eurostat (2007): “Comparing prices across countries”,
http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Comparing_prices_acr
oss_countries
6. Eurostat Metadata: “Purchasing Power Parities”,
http://epp.eurostat.ec.europa.eu/cache/ITY_SDDS/EN/prc_ppp_esms.htm
7. Eurostat, OECD “Methodological manual on purchasing power parities” (2006) ch 5,
http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-BE-06-002/EN/KS-BE-06-
002-EN.PDF
8. Eurostat (2011): “GDP per capita, consumption per capita and price level indices”,
http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/GDP_per_capita,_cons
umption_per_capita_and_price_level_indices
9. OECD, WB, IMF, UN: “System of National accounts” 2008,
http://unstats.un.org/unsd/nationalaccount/docs/SNA2008.pdf
A-1
8. Appendix
1. Calculation for equation in section 2.1, page 5:
Price effects of anticipated productivity shifts in both tradable and nontradable goods (eq.9, p.208 in the book):
Tradable sector:
Nontradable sector:
Where subscript T and N denotes traded and nontraded goods respectively, Y denotes output,
A denotes productivity and F and G are production functions. Total domestic labor supply is
fixed at . Assumption of perfect international capital mobility ties domestic
interest rate to world interest rate, denoted as r, which is thus the world interest rate in terms
of tradables and also the marginal product of capital in the traded-goods sector.
The profit-maximizing firm in both sectors will maximize the following production functions:
Tradable sector:
Nontradable sector:
Where and . Denoting capital-labor ratios as
and
, output per employer as and
, the first order conditions for capital and labor are:
Tradable sector: and
Nontradable sector: and
Then, as , deriving zero-profit conditions for productivity leads to:
Tradable sector:
Nontradable sector:
Log-differentiating for tradable sector, holding r constant, leads to:
A-2
Then, denoting a small percentage change of logarithmic derivative as
,
letting
and
be labor’s share of the income generated in the traded and
nontraded goods sectors respectively, the equation reduces to
Tradable sector:
Nontradable sector:
Then, providing that the inequality
holds, faster productivity growth in tradables than
in nontradables will push up price on nontradables over time:
Because the rate of increase in depends on wage growth, the effect is greater the more
labor-intensive are nontradables relative to tradables.
2. Eurostat coding: How to look up statistics based on coding on the Eurostat homepage:
1. Go to the Eurostat homepage:
http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home
2. Click on Search-button (at the top right corner)
3. Click on “Advanced search options”
4. Write in the code in “Eurostat code”
5. Click on “Search”
A-3
3. List of goods and services used in Actual Individual consumption:
Composition of actual individual consmuption according to ESA95 : basic headings
Food and non-alcoholic beverages Alocholic beverages, tobacco and narcotics
1 Rice 35 Spirits
2 Other cereals, flour and other cereal products 36 Wine
3 Bread 37 Beer
4 Other bakery products 38 Tobacco
5 Pasta products 39 Narcotics – reference ppp
6 Beef and veal Clothing and footrwear
7 Pork 40 Clothing materials
8 Lamb, mutton and goat 41 Men’s clothing
9 Poultry 42 Women’s clothing
10 Other meats and edible offal 43 Children’s and infant’s clothing
11 Delicatessen and other meat preparations 44 Other articles of clothing and clothing accessories
12 Fresh, chilled or frozen fish and seafood 45 Cleaning, repair and hire of clothing
13 Preserved or processed fish and seafood 46 Men’s footwear
14 Fresh milk 47 Women’s footwear
15 Preserved milk and other milk products 48 Children’s and infant’s footwear
16 Cheese 49 Repair and hire of footwear
17 Eggs and egg-based products Housing, water, electricity, gas and other fuels
18 Butter 50 Actual rentals for housing
19 Margarine 51 Imputed rentals for housing
20 Other edible oils and fats 52 Materials for the maintenance and repair of the dwelling
21 Fresh or chilled fruit 53 Services for the maintenance and repair of the dwelling
22 Frozen, preserved or processed fruit and fruit-based products 54 Water supply
23 Fresh or chilled vegetables other than potatoes 55 Miscellaneous services relating to the dwelling - referece ppp
24 Fresh or chilled potatoes 56 Electricity
25 Frozen, preserved or processed vegetables and vegetable-based products 57 Gas
26 Sugar 58 Liquid fuels
27 Jams, marmalades and honey 59 Solid fuels
28 Confectionery, chocolate and other cocoa preparations 60 Heat energy
29 Edible ice, ice cream and sorbet Housing furnishings, equipment and maintenance
30 Food products n.e.c. 61 Kitchen furniture
A-4
31 Coffee, tea and cocoa 62 Bedroom furniture
32 Mineral waters 63 Living-room and dining-room furniture
33 Soft drinks and concentrates 64 Other furniture and furnishings
34 Fruit and vegetable juices 65 Carpets and other floor coverings
66 Repair of furniture, furnishings and floor coverings Transport
67 Household textiles 84 Motor cars with diesel engine
68 Major household appliances whether electric or not 85 Motor cars with petrol engine of cubic capacity of less than 1200 cc
69 Small electric household appliances 86 Motor cars with petrol engine of cubic capacity of 1200 cc to 1699 cc
70 Repair of household appliances 87 Motor cars with petrol engine of cubic capacity of 1700 cc to 2999 cc
71 Glassware, tableware and household utensils 88 Motor cars with petrol engine with cubic capacity of 3000 cc and over
72 Major tools and equipment 89 Motor cycles
73 Small tools and miscellaneous accessories 90 Bicycles
74 Non-durable household goods 91 Animal drawn vehicles – reference ppp
75 Domestic services 92 Spare parts and accessories for personal transport equipment
76 Household services 93 Fuels and lubricants for personal transport equipment
Health 94 Maintenance and repair of personal transport equipment
77 Pharmaceutical products 95 Other services in respect of personal transport equipment
78 Other medical products 96 Passenger transport by railway
79 Therapeutic appliances and equipment 97 Passenger transport by road
80 Medical services 98 Passenger transport by air
81 Dental services 99 Passenger transport by sea and inland waterway
82 Paramedical services 100 Combined passenger transport
83 Hospital services – reference ppp 101 Other purchased transport services
A-5
Communication 125 Miscellaneous printed matter, stationery and drawing materials
102 Postal services 126 Package holidays
103 Telephone and telefax equipment – reference ppp Education
104 Telephone and telefax services 127 Pre-primary and primary education - reference ppp
Recreation and culture 128 Secondary education - reference ppp
105 Equipment for the reception, recording and reproduction of sound and pictures 129 Post-secondary non-tertiary education - reference ppp
106 Photographic and cinematographic equipment and optical instruments 130 Tertiary education - reference ppp
107 Information processing equipment 131 Education not definable by level - reference ppp
108 Pre-recorded recording media Restaurants and hotels
109 Unrecorded recording media 132 Restaurant services whatever the type of establishment
110 Repair of audio-visual, photographic and information processing equipment 133 Pubs, bars, cafés, tea rooms and the like
111 Major durables for outdoor recreation – reference ppp 134 Canteens
112 Musical instruments and major durables for indoor recreation – reference ppp 135 Accommodation services
113 Maintenance and repair of other major durables for recreation and culture Miscellaneus goods and services
114 Games, toys and hobbies 136 Hairdressing salons and personal grooming establishments
115 Equipment for sport, camping and open-air recreation 137 Electric appliances for personal care
116 Gardens, plants and flowers 138 Other appliances, articles and products for personal care
117 Pets and related products 139 Prostitution – reference ppp
118 Veterinary and other services for pets 140 Jewellery, clocks and watches
119 Recreational and sporting services 141 Other personal effects
120 Photographic services 142 Social protection – reference ppp
121 Other cultural services 143 Insurance – reference ppp
122 Games of chance – reference ppp 144 FISIM – reference ppp
123 Books 145 Other financial services n.e.c. - ref. PPP
124 Newspapers and periodicals 146 Other services n.e.c.
A-6
8.1 Tables and figures
Section 4, page 10: Gross national savings in 2009:
Norway 33,8 Belgium 22,3 Finland 19,0 Iceland 13,0
Switzerland 33,0 Slovenia 22,3 Poland 19,0 Lithuania 12,8
Latvia 26,3 Czech Republic 22,0 Bulgaria 18,0 United Kingdom 12,2
Estonia 24,9 Japan 21,7 Slovakia 17,5 Portugal 9,6
Austria 24,3 Germany 21,5 United States 16,7 Cyprus 9,4
Sweden 23,8 Denmark 21,3 France 16,3 Greece 2,6
Romania 23,2 Hungary 19,9 Italy 16,2
Netherlands 22,7 Spain 19,6 Ireland 14,0
(1) EU-27, Luxembourg and Malta, not available.
Source: Eurostat (nama_inc_c)
Gross national savings in 2009 (1)(% of gross national disposable income)
A-7
Table 5.1, page 17: How to calculate PLIs for AIC:
2000 2005 2010 2000 2005 2010 2000 2005 2010
Denmark 9,86438 10,8645 10,9478 Danish krone 7,4538 7,4518 7,4473 132 146 147
Germany 1,10253 1,02967 1,0369 Euro 1,0000 1,0000 1,0000 110 103 104
Spain 0,842378 0,905828 0,958994 Euro 1,0000 1,0000 1,0000 84 91 96
France 1,05562 1,08907 1,11432 Euro 1,0000 1,0000 1,0000 106 109 111
Italy 0,981748 1,07087 1,04567 Euro 1,0000 1,0000 1,0000 98 107 105
Finland 1,20354 1,23268 1,22788 Euro 1,0000 1,0000 1,0000 120 123 123
Sweden 10,7559 11,477 11,9707 Swedish krona 8,4452 9,2822 9,5373 127 124 126
United Kingdom 0,737985 0,756107 0,87438 Pound sterling 0,60948 0,68380 0,85784 121 111 102
Norway 11,1052 11,6454 12,4535 Norwegian krone 8,1129 8,0092 8,0043 137 145 156
Switzerland 2,26003 2,19347 2,08438 Swiss franc 1,5579 1,5483 1,3803 145 142 151
Source: Eurostat (prc_ppp_ind; ert_bil_eur_a)
Exchange rates to EURActual individual consumption
Purchasing power parities (EU27=1)
Price level on AIC (EU27=100)
AIC =
Figure 5.2:Actual individual
consumption
(PLI)
GDP per
capita (PPS)
Denmark 147 31 000
Germany 103,7 28 800
Spain 95,9 24 500
France 111,4 26 300
Italy 104,6 24 600
Finland 122,8 28 200
Sweden 125,5 30 100
United Kingdom 101,9 27 300
Norway 155,6 44 200
Switzerland 151 35 900
Source: Eurostat (prc_ppp_ind)
A-8
Figure 5.3 (a) and (b):
Figure 5.4 (a) and (b):
GDP per
capita in PPS
Food and non-
alcoholic
beverages
Alcoholic
beverages,
tobacco and
narcotics
Clothing and
footwear
Housing,
water,
electricity,
gas and other
fuels
Household
furnishings,
equipment and
maintenance Transport Communication
Recreation
and culture
Restaurants
and hotels
Miscellaneous
goods and
services Health Education
Denmark 31 000 136 125 124 158 123 143 97 136 153 150 153 177
Germany 28 800 110 99 103 108 99 106 83 104 104 103 105 99
Spain 24 500 94 80 92 104 102 94 149 99 94 89 90 102
France 26 300 109 109 105 123 108 105 121 106 103 112 112 117
Italy 24 600 106 104 104 104 105 94 103 106 107 106 119 103
Finland 28 200 113 136 123 138 113 119 81 124 129 123 118 126
Sweden 30 100 115 140 125 125 110 119 76 120 139 126 124 174
United Kingdom 27 400 102 142 89 97 98 102 93 100 104 98 99 134
Norway 44 200 165 237 143 126 133 155 95 156 178 167 173 204
Switzerland 35 900 149 112 125 195 123 115 107 133 142 146 148 218
Source: Eurostat (nama_gdp_c; prc_ppp_ind)
Price level indices (EU27=100)
GDP
Food and non-
alcoholic
beverages
Alcoholic
beverages,
tobacco and
narcotics
Clothing and
footwear
Housing, water,
electricity, gas
and other fuels
Household
furnishings,
equipment
and
maintenance Transport Communication
Recreation
and
culture
Restaurants
and hotels
Miscellaneous
goods and
services Health Education
Denmark 137 136 125 124 158 123 143 97 136 153 150 153 177
Germany 105 110 99 103 108 99 106 83 104 104 103 105 99
Spain 93 94 80 92 104 102 94 149 99 94 89 90 102
France 113 109 109 105 123 108 105 121 106 103 112 112 117
Italy 105 106 104 104 104 105 94 103 106 107 106 119 103
Finland 119 113 136 123 138 113 119 81 124 129 123 118 126
Sweden 123 115 140 125 125 110 119 76 120 139 126 124 174
United Kingdom 100 102 142 89 97 98 102 93 100 104 98 99 134
Norway 146 165 237 143 126 133 155 95 156 178 167 173 204
Switzerland 143 149 112 125 195 123 115 107 133 142 146 148 218
Source: Eurostat (prc_ppp_ind)
Price level indices in 2010 (EU27=100)
A-9
Figure 5.5 (a) and (b):
Food AIC Food/AIC
Alcoholic beverages,
tobacco and
narcotics AIC Alc./AIC
Clothing and
footwear AIC Cloth./AIC
Housing, water,
electricity, gas
and other fuels AIC Housing/AIC
Denmark 130,5 147,0 0,89 125,3 147 0,85 123,8 147 0,84 158 147 1,07
Germany 110,7 103,7 1,07 98,7 103,7 0,95 103,3 103,7 1,00 108,2 103,7 1,04
Spain 93,8 95,9 0,98 79,8 95,9 0,83 92,4 95,9 0,96 104,1 95,9 1,09
France 110,2 111,4 0,99 108,8 111,4 0,98 104,6 111,4 0,94 122,8 111,4 1,10
Italy 107,3 104,6 1,03 103,5 104,6 0,99 103,6 104,6 0,99 104 104,6 0,99
Finland 110,9 122,8 0,90 136,1 122,8 1,11 123,0 122,8 1,00 137,7 122,8 1,12
Sweden 114,6 125,5 0,91 139,9 125,5 1,11 124,8 125,5 0,99 125 125,5 1,00
United Kingdom 101,1 101,9 0,99 142,3 101,9 1,40 88,9 101,9 0,87 96,7 101,9 0,95
Norway 162,5 155,6 1,04 237,0 155,6 1,52 142,8 155,6 0,92 126 155,6 0,81
Switzerland 151,8 151,0 1,01 111,9 151 0,74 125,3 151 0,83 195,4 151 1,29
Household furnishings,
equipment and
maintenance AIC Furnish./AIC Transport AIC Transp./AIC
Commu-
nication AIC Comm/AIC
Recreation
and culture AIC Recr./AIC
Denmark 122,8 147 0,84 142,6 147 0,97 97,4 147 0,66 136,4 147 0,93
Germany 99,1 103,7 0,96 106,2 103,7 1,02 83 103,7 0,80 104,4 103,7 1,01
Spain 101,5 95,9 1,06 94 95,9 0,98 149,1 95,9 1,55 98,8 95,9 1,03
France 107,6 111,4 0,97 104,6 111,4 0,94 120,6 111,4 1,08 106,4 111,4 0,96
Italy 105,0 104,6 1,00 94,3 104,6 0,90 103,1 104,6 0,99 106,2 104,6 1,02
Finland 112,7 122,8 0,92 118,7 122,8 0,97 81,2 122,8 0,66 124 122,8 1,01
Sweden 110,2 125,5 0,88 118,5 125,5 0,94 76 125,5 0,61 120,3 125,5 0,96
United Kingdom 98,0 101,9 0,96 102,2 101,9 1,00 93 101,9 0,91 100 101,9 0,98
Norway 133,3 155,6 0,86 154,6 155,6 0,99 94,5 155,6 0,61 155,9 155,6 1,00
Switzerland 122,9 151 0,81 114,5 151 0,76 107,4 151 0,71 132,6 151 0,88
Restaurants
and hotels AIC Rest./AIC
Miscella-
neous
goods and services AIC Misc./AIC Health AIC Health/AIC Education AIC Edu./AIC
Denmark 153,3 147 1,04 150,1 147 1,02 152,8 147 1,04 177,4 147 1,21
Germany 104 103,7 1,00 103,1 103,7 0,99 105 103,7 1,01 99,4 103,7 0,96
Spain 94,4 95,9 0,98 89,4 95,9 0,93 89,8 95,9 0,94 101,6 95,9 1,06
France 103,3 111,4 0,93 111,5 111,4 1,00 111,5 111,4 1,00 117,2 111,4 1,05
Italy 107,2 104,6 1,02 105,7 104,6 1,01 118,7 104,6 1,13 102,9 104,6 0,98
Finland 129,1 122,8 1,05 123,4 122,8 1,00 117,5 122,8 0,96 126,1 122,8 1,03
Sweden 138,6 125,5 1,10 125,6 125,5 1,00 123,6 125,5 0,98 173,7 125,5 1,38
United Kingdom 103,8 101,9 1,02 97,8 101,9 0,96 98,5 101,9 0,97 134 101,9 1,32
Norway 178,3 155,6 1,15 167,1 155,6 1,07 172,6 155,6 1,11 203,5 155,6 1,31
Switzerland 141,6 151 0,94 146,1 151 0,97 148,1 151 0,98 217,8 151 1,44
Source: Eurostat (prc_ppp_inc)
Relative price in 2010 (in PLI, EU27=100)
A-10
Food and
non-alcoholic
beverages
Total real
expenditure
(PPS)
Food/Total
expenditure
Alcoholic
beverages,
tobacco and
narcotics
Total real
expenditure
(PPS) Alcohol/GDP
Clothing and
footwear
Total real
expenditure
(PPS) Cloth./GDP
Housing, water,
electricity, gas and
other fuels
Total real
expenditure
(PPS) Hous./GDP
1 600 19 900 0,08 600 19 900 0,03 700 19 900 0,04 3 800 19 900 0,19
1 700 19 900 0,09 500 19 900 0,03 800 19 900 0,04 3 800 19 900 0,19
2 000 17 300 0,12 500 17 300 0,03 800 17 300 0,05 2 600 17 300 0,15
2 100 19 900 0,11 500 19 900 0,03 700 19 900 0,04 3 700 19 900 0,19
2 100 18 100 0,12 400 18 100 0,02 1 200 18 100 0,07 3 400 18 100 0,19
1 900 19 400 0,10 700 19 400 0,04 700 19 400 0,04 3 400 19 400 0,18
1 900 20 400 0,09 500 20 400 0,02 700 20 400 0,03 3 800 20 400 0,19
1 400 21 100 0,07 400 21 100 0,02 1 100 21 100 0,05 3 800 21 100 0,18
2 100 23 100 0,09 400 23 100 0,02 1 000 23 100 0,04 4 100 23 100 0,18
2 000 22 000 0,09 900 22 000 0,04 800 22 000 0,04 3 600 22 000 0,16
Household
furnishings,
equipment
and
maintenance
Total real
expenditure
(PPS) Furnish./GDP Transport
Total real
expenditure
(PPS) Transport/GDP
Commu-
nication
Total real
expenditure
(PPS) Comm./GDP
Recreation
and culture
Total real
expenditure
(PPS) Recr./GDP
900 19 900 0,05 1 700 19 900 0,09 400 19 900 0,02 1 800 19 900 0,09
1 000 19 900 0,05 2 100 19 900 0,11 500 19 900 0,03 1 600 19 900 0,08
600 17 300 0,03 1 700 17 300 0,10 300 17 300 0,02 1 300 17 300 0,08
900 19 900 0,05 2 200 19 900 0,11 400 19 900 0,02 1 700 19 900 0,09
1 100 18 100 0,06 2 100 18 100 0,12 400 18 100 0,02 1 100 18 100 0,06
800 19 400 0,04 1 600 19 400 0,08 500 19 400 0,03 1 800 19 400 0,09
800 20 400 0,04 1 900 20 400 0,09 700 20 400 0,03 2 000 20 400 0,10
800 21 100 0,04 2 400 21 100 0,11 400 21 100 0,02 2 400 21 100 0,11
1 100 23 100 0,05 2 400 23 100 0,10 700 23 100 0,03 2 500 23 100 0,11
1 100 22 000 0,05 1 900 22 000 0,09 700 22 000 0,03 2 000 22 000 0,09
Restaurants
and hotels
Total real
expenditure
(PPS) Rest./GDP
Miscella-
neous
goods and services
Total real
expenditure
(PPS) Misc./GDP Health
Total real
expenditure
(PPS) Health/GDP Education
Total real
expenditure
(PPS) Edu./GDP
600 19 900 0,03 3 800 19 900 0,19 2 500 19 900 0,13 1 500 19 900 0,08
900 19 900 0,05 3 100 19 900 0,16 2 600 19 900 0,13 1 300 19 900 0,07
2 400 17 300 0,14 1 800 17 300 0,10 2 100 17 300 0,12 1 200 17 300 0,07
1 100 19 900 0,06 2 700 19 900 0,14 2 500 19 900 0,13 1 400 19 900 0,07
1 500 18 100 0,08 1 700 18 100 0,09 2 000 18 100 0,11 1 100 18 100 0,06
900 19 400 0,05 3 000 19 400 0,15 2 500 19 400 0,13 1 600 19 400 0,08
700 20 400 0,03 3 400 20 400 0,17 2 500 20 400 0,12 1 500 20 400 0,07
1 600 21 100 0,08 3 100 21 100 0,15 2 400 21 100 0,11 1 300 21 100 0,06
900 23 100 0,04 3 600 23 100 0,16 2 800 23 100 0,12 1 500 23 100 0,06
1 500 22 000 0,07 3 300 22 000 0,15 3 000 22 000 0,14 1 200 22 000 0,05
Source: Eurostat (prc_ppp_ind)
Relative consuption in 2010 (in PPS_EU27)
A-11
Table 5.4: As wages measured in PPSs are based on PPPs, the following table gives an indication of PPPs on different consumption groups:
Figure 5.6 (a) and (b):
Actual
Individual
Consumption
Food and
non-
alcoholic
beverages
Alcoholic
beverages,
tobacco and
narcotics
Clothing and
footwear
Housing,
water,
electricity,
gas and
other fuels
Household
furnishings,
equipment
and
maintenance Transport
Communi-
cation
Recreation
and culture
Restaurants
and hotels
Miscellaneous
goods and
services Health Education
Denmark 10,9478 9,71975 9,33264 9,21641 11,7684 9,14833 10,6218 7,25053 10,1616 11,4141 11,1751 11,3828 13,2103
Germany 1,0369 1,10675 0,986862 1,03275 1,0823 0,991017 1,06217 0,830163 1,0441 1,03964 1,03101 1,05011 0,993516
Spain 0,958994 0,938306 0,798465 0,924109 1,04069 1,01511 0,939841 1,49132 0,987615 0,944241 0,893679 0,898322 1,01641
France 1,11432 1,10219 1,08834 1,04551 1,2277 1,07575 1,04587 1,20632 1,06448 1,03335 1,11501 1,1153 1,17172
Italy 1,04567 1,07305 1,03537 1,03558 1,03951 1,05037 0,942907 1,03086 1,06247 1,07158 1,05717 1,18688 1,02916
Finland 1,22788 1,10948 1,36104 1,22994 1,3773 1,12678 1,18657 0,812475 1,2396 1,29091 1,23401 1,17465 1,26092
Sweden 11,9707 10,9297 13,3472 11,9055 11,9198 10,5096 11,298 7,24505 11,4723 13,214 11,9744 11,7893 16,5694
United Kingdom 0,87438 0,867004 1,2205 0,7629 0,829637 0,841008 0,877014 0,798121 0,857422 0,890552 0,839381 0,844991 1,14961
Norway 12,4535 13,0083 18,9684 11,428 10,0886 10,6703 12,3773 7,56198 12,4793 14,2747 13,3729 13,8176 16,2914
Switzerland 2,08438 2,09475 1,54454 1,72931 2,6969 1,69605 1,58019 1,48184 1,83061 1,95413 2,01717 2,04415 3,00674
Source: Eurostat (prc_ppp_ind)
Purchasing power parities in 2010 (EU27=1)
Gross earnings
in 2009
(PPS)
Single full time
emlpyee
without children
Food and non-
alcoholic
beverages
Alcoholic
beverages,
tobacco and
narcotics
Clothing and
footwear
Housing,
water,
electricity, gas
and other fuels
Household
furnishings,
equipment and
maintenance Transport
Communi-
cation
Recreation
and culture
Restaurants
and hotels
Miscella-
neous
goods and
services Health Education
Denmark 34 025 138 124 129 160 124 145 87 141 155 151 152 177
Germany 38 691 111 103 105 111 99 107 93 105 105 105 106 100
Spain 24 722 97 78 94 103 105 96 130 100 96 91 94 106
France 28 857 110 111 106 124 109 105 121 111 105 113 113 119
Italy 26 192 108 108 105 104 106 97 109 106 108 107 119 108
Finland 30 280 119 138 123 137 112 119 84 122 131 124 119 126
Sweden 31 693 104 130 112 109 98 111 61 110 124 113 110 156
United Kingdom 40 013 97 138 83 94 93 98 94 99 100 94 94 129
Norway 37 331 154 221 138 117 118 149 78 142 162 153 157 183
Switzerland 36 388 140 106 115 185 113 110 96 124 132 137 139 201
Source: Eurostat (prc_ppp_ind; earn_nt_net)
Price level indices in 2009 (EU27=100)
A-12
Figure 5.7 (a) and (b):
Wholesale and retail trade;
repair of motor vehicles
and motorcycles
Industry
(except
construction)
Human health and
social work
activities
Transportation
and storage
Information and
communication Education
Accommodation
and
food service
activities
Denmark 35 509 37 519 30 414 35 625 47 297 37 569 29 852
Germany 36 190 39 498 36 096 32 694 52 916 42 899 20 977
Spain 23 730 27 799 29 837 26 850 35 013 28 076 19 017
France 27 603 31 226 24 240 27 548 41 247 : 22 896
Italy : : : : : : :
Finland 28 615 32 729 26 233 27 929 38 330 31 702 22 038
Sweden 31 455 32 500 28 005 27 348 40 778 26 689 18 065
United Kingdom 31 284 37 280 33 980 34 627 50 565 34 963 23 735
Norway 34 344 39 414 33 566 35 907 45 515 36 791 28 461
Switzerland 32 694 37 255,8 35 349,2 37 331,9 37 331,9 41 496,1 24 611,1
Single full-time employee without children. Enterprises for 10 or more employees; Norway: 1+ employees.
Switzerland: figures for 2008. Italy not available
Source: Eurostat (earn_gr_nace2)
Sectoral gross wages in 2009 (PPS)
Food and non-
alcoholic beverages
Alcoholic
beverages,
tobacco and
narcotics
Clothing and
footwear
Housing,
water,
electricity, gas
and other fuels
Household
furnishings,
equipment and
maintenance Transport
Communi-
cation
Recreation
and culture
Restaurants
and hotels
Miscella-
neous goods and
services Health Education
Denmark 138 124 129 160 124 145 87 141 155 151 152 177
Germany 111 103 105 111 99 107 93 105 105 105 106 100
Spain 97 78 94 103 105 96 130 100 96 91 94 106
France 110 111 106 124 109 105 121 111 105 113 113 119
Italy 108 108 105 104 106 97 109 106 108 107 119 108
Finland 119 138 123 137 112 119 84 122 131 124 119 126
Sweden 104 130 112 109 98 111 61 110 124 113 110 156
United Kingdom 97 138 83 94 93 98 94 99 100 94 94 129
Norway 154 221 138 117 118 149 78 142 162 153 157 183
Switzerland 140 106 115 185 113 110 96 124 132 137 139 201
Source: Eurostat (prc_ppp_ind)
Price level indices in 2009 (EU27=100)
A-13
Figure 5.8 (a) and (b):
Food and non-
alcoholic
beverages AIC Food/AIC
Alcoholic
beverages,
tobacco and
narcotics AIC Alc./AIC
Clothing and
footwear AIC Cloth./AIC
Household
furnishings,
equipment and
maintenance AIC Furnish./AIC
Denmark 138,4 148,1 0,935 123,9 148,1 0,837 129 148,1 0,871 123,8 148,1 0,836
Germany 110,5 105,3 1,049 103,4 105,3 0,982 104,5 105,3 0,992 99 105,3 0,940
Spain 96,5 97,3 0,992 78,2 97,3 0,804 94,3 97,3 0,969 105,3 97,3 1,082
France 110 113,1 0,973 111 113,1 0,981 106,1 113,1 0,938 108,5 113,1 0,959
Italy 107,9 106 107,9 106 105,1 106 106,2 106
Finland 119,1 123,8 0,962 137,5 123,8 1,111 123,3 123,8 0,996 111,5 123,8 0,901
Sweden 104,2 112,2 0,929 129,8 112,2 1,157 111,5 112,2 0,994 97,8 112,2 0,872
United Kingdom 97 98,2 0,988 138 98,2 1,405 82,9 98,2 0,844 93,2 98,2 0,949
Norway 153,6 143,3 1,072 220,8 143,3 1,541 137,8 143,3 0,962 118 143,3 0,823
Switzerland 140,3 141,5 0,992 106 141,5 0,749 115,1 141,5 0,813 112,8 141,5 0,797
Housing,
water,
electricity, gas
and other fuels AIC Housing/AIC Transport AIC Transport/AIC
Commu-
nication AIC Comm./AIC
Recreation
and culture AIC Recr./AIC
Denmark 160,3 148,1 1,082 144,9 148,1 0,978 86,6 148,1 0,585 140,5 148,1 0,949
Germany 110,9 105,3 1,053 106,9 105,3 1,015 93,3 105,3 0,886 105,3 105,3 1,000
Spain 102,9 97,3 1,058 96 97,3 0,987 129,5 97,3 1,331 100 97,3 1,028
France 124,2 113,1 1,098 105,2 113,1 0,930 120,8 113,1 1,068 110,5 113,1 0,977
Italy 104,2 106 97,1 106 109,2 106 105,5 106
Finland 136,8 123,8 1,105 118,8 123,8 0,960 83,9 123,8 0,678 122,3 123,8 0,988
Sweden 108,6 112,2 0,968 111,4 112,2 0,993 61 112,2 0,544 109,9 112,2 0,980
United Kingdom 93,7 98,2 0,954 98,4 98,2 1,002 93,7 98,2 0,954 98,6 98,2 1,004
Norway 116,7 143,3 0,814 148,6 143,3 1,037 77,5 143,3 0,541 141,9 143,3 0,990
Switzerland 184,9 141,5 1,307 109,8 141,5 0,776 96,3 141,5 0,681 124,4 141,5 0,879
Restaurants
and hotels AIC Rest./AIC
Miscellaneous
goods and
services AIC Miscell./AIC Health AIC Health/AIC Education AIC Edu./AIC
Denmark 155,1 148,1 1,047 150,6 148,1 1,017 151,6 148,1 1,024 176,5 148,1 1,192
Germany 105,3 105,3 1,000 105 105,3 0,997 106,3 105,3 1,009 99,5 105,3 0,945
Spain 95,7 97,3 0,984 91,3 97,3 0,938 93,6 97,3 0,962 105,6 97,3 1,085
France 105 113,1 0,928 113,1 113,1 1,000 113,1 113,1 1,000 118,5 113,1
Italy 108 106 106,7 106 119 106 107,6 106
Finland 131,2 123,8 1,060 124,4 123,8 1,005 118,9 123,8 0,960 125,7 123,8 1,015
Sweden 123,7 112,2 1,102 112,6 112,2 1,004 110,4 112,2 0,984 156,2 112,2 1,392
United Kingdom 99,8 98,2 1,016 94,4 98,2 0,961 93,7 98,2 0,954 128,6 98,2 1,310
Norway 162,4 143,3 1,133 152,9 143,3 1,067 156,8 143,3 1,094 183 143,3 1,277
Switzerland 131,5 141,5 0,929 137,1 141,5 0,969 139,1 141,5 0,983 201,2 141,5 1,422
Source: Eurostat (prc_ppp_ind)
Relative price in 2009 (PLI)
A-14
Wholesale and retail
trade;
repair of motor vehicles
and motorcycles Gross earning
Wholesale gr.
wage/Avr.gr. wage
Industry
(except
construction) Gross earning
Industri gr.
wage/Avr.gr. wage
Human health
and social work
activities Gross earning
Human h. gr.
wage/Avr.gr. wage
Denmark 35 509 34 025,27 1,044 37 519 34 025,27 1,103 30 414 34 025,27 0,894
Germany 36 190 38 690,74 0,935 39 498 38 690,74 1,021 36 096 38 690,74 0,933
Spain 23 730 24 722,15 0,960 27 799 24 722,15 1,124 29 837 24 722,15 1,207
France 27 603 28 857,02 0,957 31 226 28 857,02 1,082 24 240 28 857,02 0,840
Italy 26 191,56 26 191,56 0,000 26 191,56 0,000
Finland 28 615 30 279,58 0,945 32 729 30 279,58 1,081 26 233 30 279,58 0,866
Sweden 31 455 31 692,62 0,993 32 500 31 692,62 1,025 28 005 31 692,62 0,884
United Kingdom 31 284 40 012,68 0,782 37 280 40 012,68 0,932 33 980 40 012,68 0,849
Norway 34 344 37 330,78 0,920 39 414 37 330,78 1,056 33 566 37 330,78 0,899
Switzerland 32 694 36 387,78 0,898 37 255,8 36 387,78 1,024 35 349,2 36 387,78 0,971
Transportation
and storage Gross earning
Transp.gr.
wage/Avr.gr. wage
Information and
communication Gross earning
Inform. gr.
wage/Avr.gr. wage Education Gross earning
Edu. gr.
wage/Avr. Gr. wage
Denmark 35 625 34 025,27 1,047 47 297 34 025,27 1,390 37 569 34 025,27 1,104
Germany 32 694 38 690,74 0,845 52 916 38 690,74 1,368 42 899 38 690,74 1,109
Spain 26 850 24 722,15 1,086 35 013 24 722,15 1,416 28 076 24 722,15 1,136
France 27 548 28 857,02 0,955 41 247 28 857,02 1,429 28 857,02 0,000
Italy 26 191,56 0,000 26 191,56 0,000 26 191,56 0,000
Finland 27 929 30 279,58 0,922 38 330 30 279,58 1,266 31 702 30 279,58 1,047
Sweden 27 348 31 692,62 0,863 40 778 31 692,62 1,287 26 689 31 692,62 0,842
United Kingdom 34 627 40 012,68 0,865 50 565 40 012,68 1,264 34 963 40 012,68 0,874
Norway 35 907 37 330,78 0,962 45 515 37 330,78 1,219 36 791 37 330,78 0,986
Switzerland 37 331,9 36 387,78 1,026 37 331,9 36 387,78 1,026 41 496,1 36 387,78 1,140
Accommodation and
food service activities Gross earning
Accom. gr.
wage/Avr. gr. wage
Denmark 29 852 34 025,27 0,877
Germany 20 977 38 690,74 0,542
Spain 19 017 24 722,15 0,769
France 22 896 28 857,02 0,793
Italy 26 191,56 0,000
Finland 22 038 30 279,58 0,728
Sweden 18 065 31 692,62 0,570
United Kingdom 23 735 40 012,68 0,593
Norway 28 461 37 330,78 0,762
Switzerland 24 611,1 36 387,78 0,676
Single full-time employee without children. Enterprises with 10 or more employees; Norway: 1+ employees
Switzerland: figures for 2008; Italy not available.
Source: Eurostat (earn_gr_nace2)
Relative wage in 2009 (PPS)
A-15
Figure 5.9:
Figure5.10 (a) and (b):
Gross earningReal expenditure
per capita for AIC
GDP per capita
at market prices
Denmark 34 025,27 19 200 28 900
Germany 38 690,74 19 600 27 200
Spain 24 722,15 16 100 24 200
France 28 857,02 19 200 25 400
Italy 26 191,56 17 400 24 400
Finland 30 279,58 18 600 27 000
Sweden 31 692,62 19 400 28 000
United Kingdom 40 012,68 20 500 26 000
Norway 37 330,78 22 800 41 200
Switzerland 36 387,78 20 800 33 700
Source: Eurostat (earn_nt_net; prc_ppp_ind; nama_gdp_c)
Figures in 2009 (PPS)
Net earnings
in 2009
(PPS)
Single full time
emlpyee
without children
Food and non-
alcoholic
beverages
Alcoholic
beverages,
tobacco and
narcotics
Clothing and
footwear
Housing,
water,
electricity, gas
and other fuels
Household
furnishings,
equipment and
maintenance Transport
Communi-
cation
Recreation
and culture
Restaurants
and hotels
Miscella-
neous goods
and services Health Education
Denmark 20 577 138 124 129 160 124 145 87 141 155 151 152 177
Germany 22 702 111 103 105 111 99 107 93 105 105 105 106 100
Spain 19 828 97 78 94 103 105 96 130 100 96 91 94 106
France 20 857 110 111 106 124 109 105 121 111 105 113 113 119
Italy 18 391 108 108 105 104 106 97 109 106 108 107 119 108
Finland 21 485 119 138 123 137 112 119 84 122 131 124 119 126
Sweden 23 643 104 130 112 109 98 111 61 110 124 113 110 156
United Kingdom 29 879 97 138 83 94 93 98 94 99 100 94 94 129
Norway 26 582 154 221 138 117 118 149 78 142 162 153 157 183
Switzerland 30 567 140 106 115 185 113 110 96 124 132 137 139 201
Source: Eurostat (prc_ppp_ind; earn_nt_net)
Price level indices in 2009 (EU27=100)
A-16
Figure 5.11:
Net earning HFCE
Denmark 20 576,78 13 900
Germany 22 702,41 15 500
Spain 19 828,05 13 400
France 20 857,41 14 200
Italy 18 390,81 14 600
Finland 21 484,52 14 000
Sweden 23 643,39 13 400
United Kingdom 29 878,59 16 000
Norway 26 582,14 17 100
Switzerland 30 567,11 18 900
Source: Eurostat (earn_nt_net; prc_ppp_ind; nama_gdp_c) Source: Eurostat (earn_nt_net; nama_gdp_c)
Figures in per capita in 2009 (PPS)